The Two Mainstream Models of Stock Tokenization: The Battle Between Open and Closed

Tokenization of real-world assets has become an important trend in the blockchain sector. With the entry of fintech giants like Kraken and Robinhood, this blockchain technology-driven transformation is unfolding. Global investors have the opportunity to trade "digital stocks" of companies like Apple and Tesla in a low-friction manner, around the clock. This article will delve into the intrinsic logic of current mainstream stock tokenization products, focusing on their implementation methods and potential risks.

We will conduct a comparative analysis using two typical cases: xStocks (, representing the "Open DeFi" path, issued by Backed Finance and traded on exchanges like Kraken ), and Robinhood, representing the "Compliance Walled Garden" path.

1. The underlying logic of the two mainstream models

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

Mode One: xStocks - Embracing the Open Road of DeFi

Core Definition: The tokens held by users legally represent, directly or indirectly, ownership or interests in real stocks. This is a mapping of real stocks on the blockchain, pursuing authenticity and transparency of assets.

Legal Framework:

• Issued by the Swiss company Backed Finance, in compliance with the Swiss DLT Act.
• Establish a special purpose vehicle (SPV) in Liechtenstein to hold real stocks and achieve risk isolation.

Asset-backed and liquidity strategies:

• 1:1 pegged, each Token corresponds to a share of real stock
• Professional investors can apply to purchase stocks and issue tokens.
• Integrated with Chainlink PoR to provide proof of reserves
• Dual-track liquidity: centralized exchange market makers + DeFi protocol

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

Core Definition: The stock tokens purchased by users are essentially derivative contracts that track the stock price signed with Robinhood Europe. The on-chain tokens are merely digital certificates of the rights under the contract.

Legal Framework:

• Issued by Robinhood Europe UAB registered in Lithuania
• Classified as derivatives under the EU MiFID II framework

Technical implementation:

• Quickly deploy at low cost on Arbitrum
• The contract integrates KYC and whitelisting, forming a "walled garden".
• Plan to develop a dedicated Layer 2 network Robinhood Chain

Comparison of Two Modes:

xStocks is closer to the open spirit of DeFi, while Robinhood seeks a "shortcut" within the existing framework. The former is "asset tokenization", and the latter is "business tokenization".

2. Differences in Technical Architecture

Selection of Layer 1 Public Chains

• xStocks chooses Solana: Pursuing extreme performance, but facing stability challenges.
• Robinhood chooses Arbitrum: inheriting Ethereum's security, more robust

core technology components

Smart Contract:

• xStocks: Open and freely transferable SPL Token
• Robinhood: Permissioned Token with embedded transfer restrictions

Oracle ( Chainlink ):

• Provide price information and reserve proof
• Achieve cross-chain interoperability ( CCIP )

Asset On-Chain and SPV Operation

1. Asset Isolation: Real stocks deposited into SPV
2. Minting Tokens: Smart contract authorizes the minting of an equal amount of tokens.
3. Token distribution: through exchanges or direct sales to qualified investors
4. Lifecycle Management: Handling company actions such as dividends and stock splits
5. Redemption and Destruction: Maintain a 1:1 balance between on-chain circulation and off-chain reserves.

3. Business Model and Risk Assessment

business model

Robinhood:

• Charge foreign exchange conversion fees for non-Eurozone users
• Potential introduction of order flow payments, membership services, etc.
• Expand the private equity market

xStocks:

• Kraken charges trading fees
• Backed Finance charges minting/redeeming fees
• Provide B2B asset tokenization solutions

Risk Assessment Matrix

• Technical Risks: Smart contract vulnerabilities, oracle failures, etc.
• Market risks: price fluctuations, insufficient liquidity, etc.
• Legal Risks: Regulatory uncertainty, cross-border compliance challenges, etc.
• Operational risks: platform credit risk, custody security, etc.
• User Risks: Information asymmetry, misunderstanding of product nature, etc.

Market Landscape and Future Outlook

Main Player Matrix

• Open DeFi camp: xStocks, Synthetix, etc.
• Compliance First Camp: Robinhood, Hashnote, etc.
• Infrastructure providers: Securitize, Polymath, etc.

market trends

• From isolation to integration: Deep integration with TradFi and DeFi ecosystems
• Regulation-driven innovation: MiCA, DLT legislation, etc. provide clear rules
• Institutional entry and product diversification
• Private equity tokenization has become a new blue ocean.

Future Thinking

• The Debate Between Open and Closed Models
• The balance between technological innovation and legal frameworks
• Reshaping the paradigms of issuance, trading, clearing, and ownership in the global financial markets

Stock tokenization is fundamentally changing the way financial assets operate, promising to build a more efficient, transparent, and inclusive global financial market. Despite facing numerous challenges, this trend is irreversible. Market participants need to deeply understand its underlying logic and potential risks, and actively yet cautiously embrace this financial revolution.