Stock Tokenization Products: Innovation or Marketing? A Carefully Crafted Brand Narrative War

Recently, a trading platform launched a stock tokenization product, which has sparked heated discussions in the Web3 community. As a long-time observer of Blockchain technology, I believe it's necessary to discuss the essence of this product. Frankly speaking, this feels more like a meticulously planned marketing campaign rather than a genuine technological innovation.

Core Points

The stock tokenization product launched by this trading platform is essentially a well-planned marketing campaign. Its main purpose is to seize the high ground on the hot topic of RWA, but from the perspective of actual innovation, there are not many highlights. In short, it uses Blockchain technology as a brand promotion tool and does not fully leverage the core advantages of Blockchain's decentralization and composability.

The "synthetic packaging" model of this platform has deficiencies in both legal structure and functionality compared to the "digital twin" model of a certain DEX. What it actually provides to users is a derivative contract, rather than true ownership of the underlying assets. Although it claims to offer EU clients exposure to US stocks, this goal can be achieved through traditional financial instruments without such complex operations. Furthermore, visions such as "24x7 trading" and "retail investment in private equity" sound very appealing, but are difficult to realize in reality.

Although the platform successfully positions itself as an industry innovator with this product, its true significance lies in indicating a possible path for the integration of traditional finance and decentralized finance. This path is likely to be led by Web2 companies that can simplify the complexities of Web3 and encapsulate it within more controllable ecosystems.

Four Models of Stock Tokenization

Before delving into the analysis of the platform products, we need to understand the different methods of stock tokenization. There are various ways to transfer traditional stocks onto the Blockchain, just as there are multiple methods of cooking.

Synthetic Assets

This is a purely DeFi play. Users do not need to hold actual stocks but can create tokens (such as sTSLA) that track the prices of any real-world assets (including stocks) by over-collateralizing crypto assets (such as ETH) in a smart contract. The price anchoring of synthetic tokens is governed by the smart contract: it obtains real-world asset prices through oracles, and based on this, it settles the gains and losses of token holders, ensuring that the token value remains in sync with the target asset price.

Users trust in code and economic models. They bet on the robustness of the smart contract system and the price stability of over-collateralized collateral.

Synthesized Package

This essentially represents a derivatives play. The tokens purchased by users actually represent a contract signed with the trading platform, which promises to pay the token holders returns equal to the fluctuations in the corresponding stock price. To fulfill this commitment, the platform typically buys actual stocks as a hedge, but this is not a legal obligation. Theoretically, as long as regulatory approval is obtained, the platform can also substitute stock positions by purchasing futures or other derivatives instead of needing to acquire stocks on a 1:1 basis. The platform is also not obligated to disclose its specific stock holdings to token holders.

Users fully trust the trading platform and the regulatory bodies behind it.

digital twin

This is currently the most recognized model. For every Token issued by the issuer, a corresponding share of stock must be actually deposited in a regulated custodian bank. The Tokens held by users act as the "digital claim certificates" for the stocks.

Users need to trust the issuer, the custodian bank, and the regulatory authorities at the same time, but the benefit is that there are usually on-chain tools (such as reserve proof) that allow users to check at any time whether the stocks in the "vault" actually exist.

Native Digital Securities

This is the most revolutionary model. Stocks are no longer a "mapping" of off-chain assets, but are issued directly on the Blockchain. The Blockchain itself is a legal record of ownership, completely bidding farewell to paper certificates and centralized systems.

Users trust the blockchain network itself and the legal framework that recognizes this form.

comparison analysis with competitors

Comparison with Synthetic Asset Model

Commonality: Both provide users with economic exposure to stocks rather than direct ownership. Essentially, they are both derivatives designed to replicate the price performance of stocks.

Differences: The core distinction lies in the basis of trust.

• The trust in synthetic packaging models comes from institutions and regulation. Users believe that regulated companies will fulfill their contractual obligations.
• The trust in synthetic asset models comes from code and economic games. Users believe that the robustness of the code and the excess collateral can ensure the stable value of synthetic assets.

Comparison with Digital Twin Model

Common point: The issuers of both models theoretically hold real stocks as support.

Differences:

• The purpose of holding stocks is different: in the synthetic packaging model, holding stocks is a means of hedging one's own risks, which is a risk management measure and not a direct legal obligation to the user. In contrast, the issuer of the digital twin model has a legal obligation to hold and custody one real stock for every issued Token on a 1:1 basis.

• Ownership and risk differ: In the synthetic encapsulation model, stocks belong to the platform company's assets, and users are merely unsecured creditors. If the platform goes bankrupt, these stocks will be used to repay all creditors, and users have no priority. In contrast, in the digital twin model, stocks are stored in a segregated custody account set up for the benefit of users, theoretically isolating them from the issuer's bankruptcy risk, thus providing stronger protection for users' asset ownership.

• On-chain utility differs: Tokens in the synthetic packaging model are confined within their "walled garden" and cannot interact with external DeFi protocols. In contrast, the digital twin model is open, allowing users to withdraw them to their own wallets for DeFi lending, trading, etc., possessing true composability.

questions about the platform's products

The necessity of Blockchain technology

The functions provided by this platform, which allow European users to enjoy the benefits of rising US stocks without holding US stocks, can be fully realized through Contracts for Difference (CFD) or other derivatives, which have existed in the traditional financial world for decades. The platform can completely use a regular centralized database to record transactions, and there is no need to use Blockchain at all.

The main purpose of adopting Blockchain technology is likely marketing. In today's world where the concepts of RWA and tokenization are all the rage, putting a "Blockchain" and "Token" label on a product can immediately attract attention, generate news, boost company stock prices, and package itself as an innovator at the forefront of the times.

Limitations of the DeFi ecosystem

Although the platform's stock token issuance is on a public Blockchain, its smart contract has a "gate code" that only allows transfers between wallets approved by the platform. This means users cannot transfer tokens to their own wallets, cannot trade on DEX, and cannot use them for collateral lending— all Web3 composability features are not achievable.

This approach is mainly to control and comply. Once fully opened, the platform will find it difficult to manage regulatory requirements such as KYC/AML. Therefore, it is willing to sacrifice the core open spirit of Blockchain to establish an absolutely secure "walled garden".

The Paradox of Decentralization

Users must fully trust the platform. The only thing the Blockchain can prove is that "the user indeed purchased a contract from the platform." However, it cannot prove whether the platform actually bought stocks to hedge risks, nor can it prove whether the platform has the ability to fulfill this contract in the event of bankruptcy.

This forms a huge paradox. Blockchain was originally created to eliminate trust in centralized institutions, but the model of the platform requires users to place all their trust in a single company. In that case, what is the significance of using blockchain to prove that "the user has completed the purchase" for such a trivial matter?

the "revolutionary" features that have been overly hyped

The real difficulties of 24x7 around-the-clock trading

Although it sounds wonderful, the reality is quite complex. The platform only promises "24x5" trading instead of "24x7" due to the fact that the two weekend days are a "risk black hole" for global financial markets.

The challenges faced by market makers: Any trading market requires market makers to provide liquidity. To hedge risks, market makers need to buy stocks in the real stock market when users buy Tokens. However, major securities exchanges are closed on weekends, and market makers cannot hedge. If they cannot hedge, they have to bear all the risks themselves. In the event of a major incident over the weekend, if stock prices plummet when the market opens on Monday, market makers may face bankruptcy.

Even during the night from Monday to Friday, since the real stock market has closed, market makers can only perform imperfect hedging through tools such as index futures. To compensate for the risk, they significantly increase the bid-ask spread. Therefore, the cost of after-hours trading is very high, and liquidity is poor, making it suitable only for users with urgent needs. It is more like an expensive "emergency exit" rather than a smooth trading channel.

The Real Barriers to Private Equity Investment

The platform once launched an event to distribute tokens of certain well-known unlisted companies, which immediately sparked follow and controversy. This involves two key questions: first, why were the stocks of these popular companies chosen for distribution? Second, since the platform claims that the tokens are backed by real stocks, where did these unlisted private company stocks come from?

These stocks are likely from the "secondary market for private equity". The trading in this market is opaque, prices are not public, and liquidity is extremely poor. The platform may have barely acquired a small number of shares through a complex "special purpose vehicle" (SPV) structure. Due to the small quantity, even if the company goes public in the future, there will be a lack of liquidity, so they are simply given away as a marketing gimmick.

Private equity investment has always had a very high threshold, open only to "qualified investors." The main reason is that the risks are extremely high and the information is highly asymmetric. Institutions capable of participating in such investments can complete transactions without relying on stock codes; whereas ordinary investors are restricted from accessing these opportunities because they neither need nor can bear this kind of risk. Tokenizing these assets may superficially seem like "popularizing investment opportunities," but in reality, it may be pushing risks that should not be borne by ordinary investors onto the public—essentially, this is more about "popularizing risks" rather than opportunities.

Marketing Success and Future Outlook

Despite the numerous issues, from another perspective, this action by the platform could be seen as a shrewd strategic move.

First of all, this is a victory in the war of brand narrative. Although the product itself does not have much innovation in terms of technology, the platform has successfully surpassed those competitors with more advanced technology but lower recognition in terms of brand awareness and market voice. It has successfully linked itself with the grand narrative of "the future of finance," which is crucial for a publicly traded company.

Secondly, this could be paving the way for the future. The platform has already announced plans to establish its own Layer 2 Blockchain in the future and support users in "self-custody" of assets. This is the key! This means that the current "walled garden" may just be a transitional phase, a testing ground for accumulating users, testing technology, and communicating with regulators. When the gates of this garden truly open, all the limitations we discuss today may be disrupted.

Finally, this case also shows that the large-scale application of Web3 technology may not be possible without traditional internet financial service providers like this platform. Pure DeFi is still too complex for ordinary users. What these platforms excel at is making complex technology simple, seamless, and user-friendly. They act like translators, telling the story of Web3 in a language that the public can understand.

Therefore, our final conclusion is:

• The stock tokens launched by the platform this time, at the current stage, indeed have more symbolic significance than practical significance, and are more like a successful marketing campaign.

• But it also acts as a wedge, opening the door to the integration of traditional finance and Blockchain. It has taken the first step in a pragmatic way. True revolutions do not happen overnight, and what we are witnessing may be the beginning of this significant transformation.

• For ordinary investors, maintaining clarity, analyzing rationally, neither being deceived by glamorous narratives nor completely denying future possibilities, may be the wisest attitude.