Two Paths of Stock Tokenization: Open DeFi vs Closed Garden

The tokenization of real-world assets ( RWA ) has become an important trend in the blockchain field. In particular, stock tokenization, with the participation of multiple fintech companies, is reshaping the global investment landscape. This report will deeply analyze the underlying logic of current mainstream stock tokenization products, focusing on their implementation methods and potential risks.

1. The Underlying Logic of Two Major Mainstream Models

The primary challenge facing stock tokenization is compliance. Currently, the market has formed two distinctly different compliance paths: 1:1 asset-backed security tokens and derivative contract tokens.

Model One: xStocks - Open Decentralized Finance Path

Core definition: The tokens held by users directly represent ownership or rights to real stocks, serving as a mapping of stocks on the blockchain.

Legal Framework:

• Issued by the Swiss company Backed Finance, in accordance with the Swiss DLT law.
• Set up a special purpose vehicle (SPV) in Liechtenstein to hold real stocks.
• Achieve risk isolation to ensure asset safety

Asset backing and liquidity:

• 1:1 peg, each Token corresponds to a share of real stock
• Professional investors can apply for issuance and redemption
• Integration with Chainlink to achieve proof of reserves
• Provide dual-track liquidity in CEX and Decentralized Finance protocols

Model 2: Robinhood - Compliance-First "Walled Garden"

Core Definition: Users purchase financial derivative contracts that track the prices of specific stocks, and the Token is a digital certificate of the rights of the contract.

Legal Framework:

• Issued by Robinhood Europe UAB, regulated by the Bank of Lithuania
• Classified as derivatives under the EU MiFID II framework.
• Quickly deploy 213 types of stock tokens on the Arbitrum chain

Technology and Compliance Design:

• Smart contracts embed strict KYC and whitelist restrictions
• Isolated from open Decentralized Finance protocols, forming a closed ecosystem
• Plan to develop a dedicated Robinhood Chain

2. Comparison of Technical Architecture

Layer 1 blockchain selection

xStocks chooses Solana:

• Pursuing extreme performance, supporting high-frequency trading
• Facing challenges of network stability

Robinhood chooses Arbitrum:

• Inherit the security and ecosystem of Ethereum
• Plan to migrate to a self-built Layer 2 network

Core Technology Components

Smart Contract Design:

• xStocks: Standard SPL Token, freely transferable
• Robinhood: Embedded transfer limit logic

Oracle ( Chainlink ):

• Price Information: Synchronize real-world stock prices
• Reserve proof: Proof of off-chain asset sufficiency

Cross-chain interoperability ( Chainlink CCIP ):

• Achieve cross-chain transfer of assets, expand liquidity

Asset Onboarding and SPV Operation

1. Asset isolation: Purchase real stocks and deposit them into SPV
2. Minting Token: After confirming the assets, mint an equivalent amount of tokens on-chain.
3. Token distribution: Distributed to investors through compliant channels.
4. Lifecycle Management: Handling corporate actions such as dividends and splits
5. Redemption and Destruction: Destroy Tokens, Return Corresponding Cash

III. Business Model and Risk Assessment

Business Model

Robinhood:

• Currency conversion fee
• Potential introduction of order flow payments, membership services, etc.
• Expand the private equity market

xStocks:

• Trading Fee
• Minting/Redeeming Fee
• B2B Asset Tokenization Services

Risk Assessment Matrix

• Compliance risks: changes in regulatory policies, cross-border compliance challenges
• Technical Risks: Smart Contract Vulnerabilities, Oracle Failures
• Market Risk: Insufficient Liquidity, Price Volatility
• Counterparty risk: Custodian default, platform bankruptcy
• Operational Risk: KYC/AML Failure, Internal Control Deficiencies

4. Market Landscape and Future Outlook

Main Player Matrix Comparison

Three major camps:

1. Crypto native players: xStocks, Synthetix, etc.
2. Fintech Innovators: Robinhood, Hashnote, etc.
3. Traditional financial giants: JPMorgan, Franklin Templeton, etc.

Market Trends

• From Isolation to Integration: Deep Integration with Mainstream Financial Institutions and Decentralized Finance Ecosystem
• Regulation-driven innovation: Clear regulations promote compliant innovation
• Institutional entry and product diversification: expanding into more complex asset classes
• Private equity tokenization has become a new blue ocean: opening up a new market for high-value assets

Future Outlook

• Open vs Closed Debate: Two Models Coexist, Serving Different User Groups
• The Race Between Technology and Law: New technologies continue to break through bottlenecks, and legal frameworks need to keep pace with the times.

Stock tokenization is reshaping global financial markets. For all participants, the key lies in a deep understanding of its underlying logic and risks, and to embrace this financial revolution actively and prudently.