Two Paradigms of Stock Tokenization: Open DeFi and Closed Walls

Real-world assets ( RWA ) tokenization has become a reality in the blockchain space. In particular, stock tokenization has begun with several fintech giants entering the fray, marking the start of a structural transformation driven by blockchain technology. For the first time, global investors have the opportunity to trade "digital stocks" of mainstream companies in a low-friction manner, around the clock. This report will analyze the underlying logic of current mainstream stock tokenization products in depth, focusing on their implementation and potential risks.

We will conduct a comparative analysis using two typical cases: xStocks, representing the "open DeFi" path, and Robinhood, representing the "compliance-walled garden" path, to explore how they seek a balance between strict regulation, complex technology, and huge market opportunities.

I. Core Analysis: The Underlying Logic of Compliance

The primary challenge of stock tokenization is compliance rather than technology. The market has formed two distinct compliance paths: 1:1 asset-backed security tokens and derivative contract tokens. These two models have significant differences in their underlying legal frameworks and operational logic.

Model One: xStocks - Embracing the Open Road of Decentralized Finance

The core of xStocks is to directly or indirectly correspond the tokens held by users to the ownership or rights of real stocks. This is a mapping of real stocks on the blockchain, pursuing the authenticity and transparency of assets.

Its legal framework is sophisticated, maximizing legal risk avoidance while embracing the openness of blockchain through multiple layers of legal entities and a clear regulatory framework. xStocks is issued by the Swiss company Backed Finance, in accordance with the Swiss DLT law. A special purpose vehicle (SPV) is established in Liechtenstein to hold real stocks, achieving risk isolation.

xStocks has established a transparent asset-backed and dual-track liquidity system:

• 1:1 Pegging: Each on-chain Token strictly corresponds to one share of real stock
• Reserve Proof: Integrated with Chainlink PoR for on-chain real-time verification
• Dual-track liquidity: liquidity provided by market makers in CEX, while users can provide liquidity themselves in DeFi protocols to earn returns.

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

Stock tokens on the Robinhood platform do not legally represent ownership of the stock, but are financial derivative contracts that track the price of specific stocks. Their legal nature is over-the-counter derivatives, and on-chain tokens are merely digital certificates of contract rights.

This model is a pragmatic "regulatory arbitrage", packaging products as existing financial instruments with clear regulatory frameworks for rapid deployment at low cost. The tokens are issued by Robinhood Europe UAB, regulated by the Bank of Lithuania, and comply with the EU MiFID II framework.

Robinhood has built a closed but compliant ecosystem:

• On-chain KYC and Whitelisting: Smart contracts embed strict access controls, allowing only EU users who have passed KYC to hold and trade Tokens.
• Limited DeFi composability: Tokens are almost unable to interact with open DeFi protocols.
• Future Plans: Plan to develop the Arbitrum-based Layer 2 network Robinhood Chain

2. Comparison of Technical Architecture

1. Layer 1 blockchain selection

xStocks chooses Solana:

• Advantages: extremely high throughput, low transaction costs, sub-second confirmation
• Challenge: There has historically been a risk of network interruptions.

Robinhood chooses Arbitrum:

• Advantages: Inherits Ethereum's security and mature infrastructure
• Planning: Future migration to self-built Layer 2 network

2. Core Technology Components

Smart Contract Design:

• xStocks: freely transferable standard SPL Token
• Robinhood: Permissioned Token with Embedded Transfer Restriction Logic

Oracle ( Chainlink ):

• Price information: Synchronize real stock prices on the chain
• Reserves Proof: Verify the sufficiency of 1:1 pegging

Cross-chain interoperability ( Chainlink CCIP ):

• Achieve cross-chain transfer of assets, expand liquidity and application scenarios

3. Asset On-Chain and SPV Operation

1. Asset Isolation: Real stocks deposited into an independent SPV
2. Minting Token: Authorized on-chain minting after SPV confirmation
3. Token distribution: through compliant exchanges or direct sales to qualified investors
4. Lifecycle Management: Handling corporate actions such as dividends, stock splits, etc.
5. Redemption and Destruction: Ensure a 1:1 balance between on-chain circulation and off-chain reserves.

3. Business Model and Risk Assessment

1. Business Model and Profit Sources

Robinhood:

• Clear Revenue: Charge a 0.1% foreign exchange conversion fee for non-Eurozone users
• Potential income: may introduce order flow payments, membership services, etc.
• Expand the private equity market: issue non-listed company Tokens

xStocks (Kraken & Backed Finance):

• Trading fees: Kraken charges transaction fees for both buyers and sellers.
• Minting/Redeeming Fee: Backed Finance for institutional users
• B2B services: providing asset tokenization solutions

2. Risk Assessment Matrix

• Market risk: stock price fluctuations, insufficient liquidity
• Technical Risks: Smart Contract Vulnerabilities, Oracle Failures
• Regulatory risks: policy changes, cross-border compliance challenges
• Operational Risk: Asset Custody Security, KYC/AML Execution
• Credit risk: Issuer/counterparty default
• Legal risks: ownership disputes, difficulties in cross-border law enforcement

Market Landscape and Future Outlook

Main Players Matrix Comparison

• Pure Web3 native: xStocks, Synthetix, etc.
• Financial technology transformation: Robinhood, eToro, etc.
• Traditional finance enters the market: BlackRock, Fidelity, etc.

Market Trends and Evolution Path

• From Isolation to Integration: Deep Integration with Mainstream Financial Institutions and Decentralized Finance Ecosystem
• Regulatory-driven innovation: EU MiCA, Switzerland DLT Act and other initiatives promote compliance innovation
• Institutional entry and product diversification: expanding to structured products, private equity, etc.
• Private equity tokenization becomes a new blue ocean: facing challenges such as valuation and information disclosure.

Key Issues of the Future

• Open vs. Closed Conflict: The Two Models May Coexist Long-term
• The race between technology and law: Can technologies like cross-chain, Layer 2, and privacy computing receive legal support?

Stock tokenization is reshaping the global financial market. Despite facing numerous challenges, the future direction it points to is irreversible. Market participants need to actively and prudently embrace this financial revolution based on a profound understanding of its underlying logic and potential risks.