Key Takeaways
- Several crypto exchanges have recently listed stock tokens that are backed by real equities.
- Tokenized stocks have the potential to improve liquidity for retail investors.
- In the initial rollout, stock tokens have faced significant price deviations, mirroring early stablecoins.
After Robinhood launched trading for a range of “stock tokens” in June, CEO Vlad Tenev claimed the new offering “solves the liquidity problem by tapping into a global network of hundreds of millions of crypto market participants.”
But so far, tokenized stocks from Robinhood and others have failed to live up to that potential.
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Tokenized Stocks and the “Liquidity Problem”
By “the liquidity problem,” Tenev was likely referring to shallow liquidity on some trading venues, which can lead to price discrepancies for investors.
As a result, retail investors, who rely on brokers like Robinhood, typically pay a higher premium than large institutions, which have deeper market access and can split orders across multiple venues.
Improving liquidity on retail trading venues could lower this premium. In Tenev’s view, tokenization achieves this by expanding access to new market participants and extending trading hours.
However, in the initial stages of Robinhood’s rollout, the prices of stock tokens have diverged around 1–2% from the assets they represent. Similar discrepancies have also emerged on other exchanges that list tokenized stocks.
Price Discrepancies
In some cases, price discrepancies between stock tokens and equities have been far more extreme than a couple of percent.
On July 3, the price of AAPLX briefly jumped to $236.72, a 12% premium compared to the underlying Apple stock.
In post-market trading on July 5, a similar token tracking Amazon climbed to nearly four times the stock’s previous closing price.
Mirroring Early Stablecoins
The divergence between stock tokens and the real-world shares whose price they are meant to reflect recalls the early days of stablecoins.
With trading spread across multiple exchanges, even stablecoins that are fully collateralized by cash-like instruments would frequently depeg from the dollar due to fluctuations in demand.
As the overall stablecoin market has grown, such incidents have become rarer and less severe. Today, arbitrage traders quickly step in to correct deviations, and the largest stablecoins almost always trade close to the dollar.
In theory, the same forces should stabilize the price of stock tokens.
The double-digit price differences seen during the technology’s initial rollout certainly present an arbitrage opportunity.
But unlike stablecoin issuers, Robinhood and peers like XStocks don’t offer to redeem tokens for the underlying assets they represent.
Moreover, while stock tokens trade near-instantaneously, real-world stocks are still bound by a one-day settlement period for the New York Stock Exchange (NYSE), with other public exchanges taking even longer.
For platforms like Robinhood, which already operates an efficient trading venue based on the legacy brokerage model, if all tokenization does is further fragment liquidity, one has to wonder what the point is.
How Tokenized Stocks Can Live up to Their Potential
Tokenized stocks may hold long-term promise for expanding market access and enhancing liquidity. But in their current form, they risk exacerbating inefficiencies rather than solving them.
If tokenized equities are to succeed, platforms must prioritize tighter integrations with legacy financial infrastructure.
This could include mechanisms for authorized redemption and improved cross-venue price feeds.
Looking ahead, NYSE and other major exchanges may even adopt the technology themselves, letting traders access always-on markets and real-time settlements without the need for intermediaries.
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James Morales is CCN’s blockchain and crypto policy reporter. He has been working in the news media since 2020, writing about topics such as payments, banking and financial technology. These days, he likes to explore the latest blockchain innovations and the evolving landscape of global crypto regulation.
With an educational background in social anthropology and media studies, James uses his platform as a journalist to explore how new technologies work, why they matter and how they might shape our future.
