Turning stocks into tokens? Why it’s cool, but complicated

^{By Darius Moukhtarzade}

The crypto world is constantly evolving, and one of the most exciting new ideas is tokenization. In simple terms, tokenization means turning real-world assets (RWAs), like gold, real estate, or stocks, into digital tokens that live on a blockchain.

One hot trend is tokenized equities or stocks, where company shares become tokens you can trade anytime, anywhere. It promises easier, faster, and more flexible investing.

But the concept is still new, and there are hurdles. Let’s break down how tokenization of stocks works and what challenges it faces.

Here’s how tokenization of stocks works

Each token is created on a blockchain and backed 1:1 by the actual share it represents. That means for every token, there’s a real share stored securely by a regulated custodian.

It’s similar to how stablecoins work. Just as a stablecoin mirrors the value of a currency like the US dollar, a tokenized equity mirrors the price of a real company share. If the share price goes up or down, the token value changes in the same way.

You can buy even a small piece of a share, trade anytime, and invest globally, without needing banks or brokers in the middle. 

Why it matters for investors

Tokenized equities aim to make investing easier and more inclusive. By turning assets like company shares into digital tokens, people can access investments that were once out of reach due to a lack of access.

This is a game-changer for investors in emerging markets or those without easy access to big financial centers. With just a few dollars and no need for a traditional broker, they can now invest in global markets.

Robinhood joins the party

Last week, Robinhood announced that it’s stepping into the tokenization space. In Europe, the platform will let users trade tokenized shares of private companies - OpenAI and SpaceX - on Ethereum Layer-2 networks, Arbitrum.

These tokenized assets can be traded commission-free, with instant settlement, and for as little as €1, even during US off-hours. All of this will operate under Europe’s MiFID II rules, which are designed to keep investors safe and informed.

… But here’s the catch 

Tokenization is an exciting concept, but it faces real challenges. For instance, Robinhood's recent token launch associated with OpenAI and SpaceX occurred without the approval of either company. OpenAI denied any involvement, and Elon Musk labeled it as "fake equity."

The issue? These tokens didn’t give real ownership or rights. In fact, legal experts say they might break US securities laws. Most tokenized stocks today are just price trackers, not real shares. Investors don’t get voting power or dividends unless clearly stated. 

So for now, they’re more like replicas than true innovation.

Conclusion

Tokenized stocks are part of a bigger shift where traditional finance meets blockchain. The idea is to make markets faster, cheaper, and more accessible.

But we’re still in the early days. As the tech improves, more big players get involved and clearer rules are set, tokenized equities could one day become a part of global investing.

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