"Tokenized" Stocks Are Breaking Down Barriers. Here's What Investors Need to Know.

Yahoo

3 days ago

Key Points
Robinhood just launched its tokenized stocks platform in Europe.
It's offering tokenized versions of both public and private companies.
There are a few ways to benefit from stock tokenization without buying the tokens.
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Modern stock trading still runs on systems that were designed when every phone had a cord. Robinhood's (NASDAQ: HOOD) new tokenized stock program, which rolled out to its European users this month, is the latest attempt to switch over to faster trade processing pipes that are actually public blockchains. The brokerage is letting people buy crypto tokens that represent shares of Apple, Tesla, or even private companies, and it could potentially launch this feature in the U.S. market soon.
The promise is 24/7 trading, near‑instant transaction settlement, and the ability to buy stocks directly using crypto. That promise matters because the next wave of capital to enter crypto is likely to arrive through inflows to familiar tickers. Here's what you need to know about this trend, and how to take advantage of it with your investing.
Tokenized assets are going mainstream
Think of a tokenized stock as a crypto token that can (but does not always) confer ownership of the underlying stock.
Ideally, a company issues a token while it holds shares of the stock that's being tokenized. The investor buys the token from them, and then, in theory, holders of the token can redeem it for shares of the stock if they choose to do so. The price of the token is tightly coupled to the price of the underlying stock, as the token is exchangeable for it.
Another, far less desirable, implementation of the tokenization idea is a token that is artificially configured to mirror the price action of the underlying asset, without the token issuer actually owning any shares at all. Typically, the tokens are set to mirror the performance of the shares of private companies. These companies do not have stocks that are traded in highly liquid markets like those for public companies, and some of them are technically not allowed to be traded without permission of the stock's issuer.
In such a situation, token issuers are providing a financial product that's totally unmoored from the actual value of the asset, so there's nothing to stop holders from getting burned. Of course, it's still possible to sell such tokens to a greater fool, but they are in no way investment-grade, and you should not buy them.
For its part, Robinhood says it will back its public company tokens with real equity. But its OpenAI and SpaceX tokens rely solely on Robinhood's own hedging desk, meaning holders have no claim on the underlying businesses if things go sideways. In other words, Robinhood issues the less desirable and uninvestible type of tokenized stock, as well as tokenized shares backed by its own holdings.
But why bother with tokenization of stocks in general? In short, convenience.
Traditional equity trades in the U.S. settle the next day, they may incur fees, and the market shuts down for nights and weekends. A blockchain can close a tokenized trade in seconds for less than a penny, and it never sleeps. Robinhood is betting that this streamlining and wider trading window will win it new customers.
The upside could be massive for investors who position carefully in advance of this trend. Boston Consulting Group (BCG) pegs the potential market for tokenized real-world assets (RWAs), including stocks, at about $16.1 trillion by 2030. Today, only about $22 billion in assets are actually tokenized on‑chain. $528 million of this trading volume is stocks, but that's changing quickly.
One chain could be the biggest beneficiary here
Enter Solana, (CRYPTO: SOL) the chain that handles thousands of transactions per second, with typical fees of fractions of a cent. Those attributes matter for its prospects as a home for tokenized stock trading.
The value of tokenized assets on Solana has soared 140% as of mid-July to reach more than $101.6 million, outpacing the broader tokenization market and capturing the vast majority of this year's growth in the tokenized stocks segment. xStocks, a Solana‑native project launched on June 30, onboarded over 40,000 crypto wallets in its first week, offering more than 50 tokenized U.S. tickers.
For now, Solana's combination of throughput and cost gives it a first-mover advantage in tokenized stocks. If the segment follows the broader tokenization roadmap, capital will chase liquidity, reinforcing that lead. Regulation could hobble the segment, or a faster competitor could emerge, so size your positions accordingly.
Investors interested in the tokenization wave thus have two main options.
One is to buy Robinhood and hope the brokerage scales the program without angering regulators, and that its dalliance with issuing tokenized stocks of private companies ends before there's serious fallout.
The better option is to own a sliver of the tokenization rails via an investment in Solana or another chain that's going to be a hub for tokenized equity trading. If tokenized equities graduate from curiosity to mainstream channels, early exposure to Solana could look wise.
Since it's a blockchain system rather than a company, multiple tokenized stock issuers could operate on Solana's network. That means that the regulatory risk to the network as a whole is much lower than an investment in Robinhood. Robinhood's investments in tokenization could still bring investors significant wealth, but so far, it simply doesn't seem to be protecting investors or educating them properly in light of its approach to issuing tokens.
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Alex Carchidi has positions in Apple, Solana, and Tesla. The Motley Fool has positions in and recommends Apple, Solana, and Tesla. The Motley Fool has a disclosure policy.
"Tokenized" Stocks Are Breaking Down Barriers. Here's What Investors Need to Know. was originally published by The Motley Fool