Fundamental purpose

First of all, I have to say that most of the information you see about tokenization of stocks is inaccurate, and it doesn’t even clearly explain what tokenized stocks actually are.

I will answer all your concerns in one go.

Currently, there exists a chain of bubbles and speculation: “Stablecoin compliance → Funds entering crypto → Speculative trading of unregulated derivatives or air coins”

I want to remind you that customers are betting against the stock price trends with Robinhood, rather than participating in open market trading.

Has the future arrived or has it been overhyped?

On June 30, the American online brokerage Robinhood announced the launch of U.S. stock tokenization services on the same day as the well-known crypto trading platforms Bybit and Kraken, providing users with a 24/7 uninterrupted stock trading experience.

According to Reuters, Robinhood announced the launch of stock token trading services based on the Arbitrum network for EU users, supporting trading of over 200 US stocks and ETFs, including Nvidia, Apple, and Microsoft. On the same day, Bybit and Kraken launched the “xStocks” (tokenization of stocks) product provided by the Swiss compliance asset tokenization platform Backed Finance, covering about 60 types of stock and ETF tokens.

Driven by this news, Robinhood’s stock price hit a historic high, rising nearly 10%. The company’s executives also stated that they plan to launch tokens linked to private company stocks, starting with Sam Altman’s OpenAI and Musk’s SpaceX.

Robinhood plans to launch tokens linked to private company stocks.

Should we open a “crypto IPO” market that bypasses the traditional securities market?

On July 3, OpenAI issued an urgent announcement stating that these “OpenAI Tokens” are not equity in OpenAI. “We have not partnered with Robinhood, nor have we participated in this matter, and we do not endorse it. Any transfer of OpenAI equity requires our approval, and we have not approved any transfer.”

A trade association representing financial companies is urging the U.S. Securities and Exchange Commission to reject the opportunity for digital asset companies to offer tokenized stocks through specific exemptions, and instead adopt a more transparent approach.

In a letter sent this week to the U.S. Securities and Exchange Commission’s crypto working group, the Securities Industry and Financial Markets Association stated that its members “have been closely reading” reports that show digital asset companies are seeking to offer tokenized stocks and have submitted no-action or exemption relief to the agency. No-action relief means that if the company launches these products, SEC staff will not recommend enforcement action against the company.

“Therefore, SIFMA urges the SEC to reject these companies’ requests for no-action or exemptive relief, and instead provide a strong public process that allows for meaningful public feedback before making any decisions regarding the introduction of new trading and issuance models, as well as other issues that may arise in connection with the SEC’s consideration of policy actions in response to the RFI [Request for Information],” the association said.

First, understand what it actually is.

• Assuming the total circulating shares of a stock are the entire cake, Robinhood buys a portion from the securities market, which is considered as one piece of the cake. It then digitizes the price trend of this piece and puts it on the blockchain, lowering the entry threshold for buyers (minimum 1 euro). Essentially, it dresses up the expectations of price increases or decreases of this piece of cake as a Token on the blockchain, and then facilitates the buying and selling of this Token.
• The benefit to Robinhood is an increase in the number of users, and an increase in the number of users means the potential for revenue growth and the construction of its own financial product service ecosystem.

According to the key information document provided by Robinhood before customer registration:

The price of this product is dynamically adjusted based on the real-time value of the underlying asset provided by NASDAQ.

Holding this product does not mean that you own any shares or units, or have the right to obtain shares or units of the underlying asset. This product does not allow you to exchange it for shares or units of the underlying asset, or in any other way, and does not provide you with the rights you would have when directly purchasing shares or units of the underlying asset (for example, voting rights at shareholder meetings).

And this is a financial derivative product with a maximum risk level of 7.

This product is not subject to investor compensation or deposit insurance schemes. Robinhood Europe is the sole counterparty for payment claims related to the product among all underlying assets.

Robinhood Europe may suspend the closure of product positions under certain circumstances, such as unexpected market volatility, requests made outside of U.S. trading hours, temporary announcements, or other situations that make pricing more difficult.

Use limit orders to hedge orders within a range of 0.5% above and below the last reported trading price of the underlying asset on the Nasdaq exchange (i.e., Nasdaq Stock Market, Nasdaq OMX BX, or Nasdaq OMX PHLX), as well as within a range of 0.5% above and below the foreign exchange rate.

Perpetual contracts use limit orders to restrict orders, with prices allowed to be up to 1% above or below the last traded price quoted by the applicable perpetual contract exchange.

The specific details are based on the introduction on the official Robinhood website.

Buy and sell stock tokens

Before you purchase stock tokens

Before you purchase your first stock Token, you need to register and get approved for trading. This includes:

• Provide necessary information, such as your Tax Identification Number (TIN). If you have multiple TINs, the system may ask you to add all TINs.
• Answer questions about your investor profile to help assess your financial situation and investment objectives.
• Complete the knowledge check questionnaire to ensure you understand stock tokens and the risks.
• Review and agree to the required agreements, including the terms of use.

Search for stock tokens

You can find available stock tokens in Explore (magnifying glass). You can use the search bar to look for stock tokens by stock code or name.

Place your buy order

• After finding the stock Token you want to purchase, click on it to go to the stock Token detail page (STDP).
• On STDP, select Buy.
• We currently support buy orders using quantity or euro value, including whole tokens and fractions.
• Check estimated prices and FX details. All stock tokens are displayed in USD, and you will purchase in EUR. When you trade, the forex conversion happens automatically, and Robinhood does not add a spread, only a 0.10% forex fee.
• Once confirmed, your buy order will be placed.

Sell stock tokens

• After finding the stock Token you want to sell, click on it to go to the stock Token detail page (STDP).
• On STDP, select Sell.
• We currently support sell orders using either quantity or euro value, including whole tokens and fractions.
• Check the order details on the confirmation screen and confirm. Once confirmed, your sell order will be placed.

Check and confirm

After entering your order details, please carefully review the information on the confirmation screen. If the market is closed, the order confirmation screen will show that your order is queued for the next market opening.

Use your funds after selling

When your sell order is executed, the sale proceeds will be immediately deposited into your account, but there are some important details about how to use them:

• Funds can be traded immediately. This means you can use the cash from the sale of euros (€) to buy other stock tokens or supported assets right away.
• Withdrawal is suspended until the next working day (T+1). Although you can use these funds for trading immediately, you will not be able to withdraw the euro proceeds to your bank account until the next working day after the sale settlement.

This withdrawal suspension is particularly applicable to the euro earnings from the sale of stock tokens.

The withdrawal suspension status will be automatically lifted on the next working day.

If you make multiple sales on different dates, the proceeds from each sale will be available for withdrawal on the next business day after that specific sale.

You can check the status of your funds in Transfer → Withdrawable, and see the current withdrawable funds and the balance waiting for settlement.

Important Transaction Details

• Trading hours: You can trade stock tokens from 2 AM CET/CEST on Monday to 2 AM on Saturday. You can also queue to buy or sell orders outside of these hours, and these orders will be placed when the market reopens. The order confirmation screen will confirm whether your order has been successfully queued.
• Company Actions: Company actions related to the underlying stock (such as splits or mergers) will affect your stock tokens. Trading may be suspended during the processing of company actions. Banners and/or notifications in the app will inform you about company actions and trading suspensions. Check the company actions of the stock tokens for more details.

Market data: Charts and fundamentals are displayed in USD.

cost

Foreign exchange fee: We convert your euros at the current exchange rate, plus a small foreign exchange fee of 0.10%.

Estimated total cost: This includes:

• Converted Token Price (Euro)
• 0.1% foreign exchange fee
• Consider a small buffer for volatility

To help prevent significant price fluctuations when processing your order, the execution price of buy orders may be equal to or lower than:

• Higher than the last traded stock price by 0.5% and higher than the current Euro / US Dollar exchange rate by 0.5%.
• Similarly, the execution price of a sell order may be equal to or higher than:
• 0.5% lower than the last transaction price and 0.5% lower than the current Euro / US Dollar exchange rate.

Trading is not possible during company actions.

During the company’s action team’s efforts to address these changes, we will temporarily suspend your trading of the affected stock tokens.

During the company’s action processing period, new orders are generally not able to be placed. In most cases, trading becomes unavailable from the effective date at around 2 AM (Central European Time / Central European Summer Time) and resumes after the processing is completed, usually at the start of the U.S. market day (around 3:30 PM Central European Time / Central European Summer Time).

During the company’s action period, all outstanding orders for the stock token will be canceled.

In very rare cases, such as during delisting or liquidation, we only allow you to place sell orders for that specific stock token. Buy orders are not allowed, and any pending orders will be canceled.

What are the differences between stock tokens and traditional stocks?

Stock tokens offer many of the same benefits as traditional stocks, but since you do not own the underlying stock, you will not have certain shareholder rights, such as voting. Additionally, unlike stocks, when you purchase stock tokens, you will enter into a derivatives contract with Robinhood Europe.

How do stock tokens work?

When you purchase stock tokens, you are not buying actual stocks - you are buying tokenized contracts that track their price, which are recorded on the blockchain.

You can buy, sell, or hold stock tokens, but currently, you cannot send them to other wallets or platforms.

What are the benefits of trading Robinhood stock tokens?

There are several potential benefits to trading stock tokens on Robinhood:

• Robinhood has no commission or additional spreads: just a 0.1% forex fee to cover everything. There are never any hidden fees.
• Starting from 1 Euro: Enter the market on your terms - and earn dividends when eligible.
• 24-hour market access: Buy and sell stock tokens anytime from Monday to Friday.
• Invest with confidence: Robinhood stock tokens are offered as derivatives under MiFID II. The underlying assets are securely held by a US-licensed institution.

Summarize the current state of tokenized stocks in one sentence:

A derivative contract that requires KYC/AML (providing the tax code itself is KYC), does not possess the basic shareholder rights of traditional stocks (for example, Robinhood has no voting rights and does not even hold the underlying stocks themselves), cannot be freely transferred and circulated to other wallets or platforms on the blockchain (limited to buying and selling within the Robinhood token stock application), trades using limit orders (up and down 0.5%), and settles T+1. The most important point is that tokenized stocks cannot be traded during the sensitive period of the listed company’s information (such as during major information disclosure periods).

This is a derivative product dressed in stock clothing.

What is a stock?

Stocks (also known as “shares” or “equity”) are a type of financial instrument that grants shareholders the rights to participate in the company’s equity.

It is a type of security through which a joint-stock company allocates its ownership. Because a joint-stock company needs to raise long-term funds, it issues shares to investors as a certificate of partial ownership of the company’s capital, becoming shareholders to receive dividends (stock dividends) and/or dividends (cash dividends), and share in the profits from the company’s growth or market fluctuations; but they also have to bear the risks brought by operational errors of the company.

The world’s first stock was issued in the seventeenth century by the Dutch East India Company.

The essence of stocks is to represent ownership shares in a company. By purchasing stocks, investors effectively become shareholders of the company, sharing in its profits and risks.

What is a derivative contract?

A derivative contract is a financial agreement between two parties, the value of which is based on (or “derived from”) the price of other things—such as stocks, bonds, commodities, currencies, interest rates, or even market indices. You do not own the actual items (such as barrels of oil or company shares), but rather bet on how their prices will change.

These contracts bind Robinhood as the counterparty to pay clients based on the performance of U.S. stocks or ETFs. If the value of the U.S. stocks or ETFs increases from the start of the contract to the end, Robinhood will pay clients the profits generated. Conversely, if the value of the U.S. stocks or ETFs decreases, Robinhood will retain the difference. In the case of stock splits and stock buybacks, the derivative contracts will be modified, and the tokens will be readjusted.

What is tokenization?

When a new contract for U.S. stock derivatives is signed, Robinhood will simultaneously issue (mint) a new fungible Token on the blockchain. This Token represents the customer’s rights to U.S. stock derivatives. This Token is non-transferable.

When the American stock derivatives are closed, Robinhood will remove the tokenized American stock derivatives contracts from the blockchain. The blockchain will update in real-time, the tokens will no longer be valid, and cannot be part of a wallet or any blockchain transaction.

U.S. stock derivatives are considered complex financial instruments. They are not traded on regulated markets or other multilateral trading facilities. Furthermore, although Robinhood hedges its obligations by purchasing U.S. stocks or ETFs at a 1:1 ratio for the U.S. stock derivatives it issues, customers should understand the inherent counterparty risks of U.S. stock derivatives and assess Robinhood’s creditworthiness before engaging in trading.

What is a perpetual futures contract?

A futures contract is a type of derivative contract that obligates the buyer and seller to transact an asset at a predetermined price on a fixed future date, regardless of the market value on that date. A perpetual futures contract, or perpetual contract, is a futures contract without an expiration date. Because there is no expiration date, there is no need for the actual delivery of the asset, and the sole purpose of a perpetual futures contract is to speculate on the price of the asset. These contracts can be used to speculate that future prices will be lower than the current price (known as a short position) or higher than the current price (known as a long position).

What is a crypto perpetual futures contract (or crypto perpetual contract)?

Cryptocurrency perpetual contracts refer to perpetual futures contracts that are based on cryptocurrency assets as the reference asset. The cryptocurrency perpetual contracts offered by Robinhood refer to the cryptocurrency assets listed in the key information document here.

It is not even tokenized stocks, but rather tokenized financial derivative contracts.

The tokenized stock issued by Robinhood Europe is essentially not a real stock ownership but a derivative. Specifically, Robinhood clearly states: “You do not own the underlying stock and cannot exchange it for stock”; what you are trading is a private contract between Robinhood and yourself, rather than a blockchain-mapped stock registration. This is essentially a new packaging of a Contract for Difference (CFD) rather than a tokenized security.

This product issued by Robinhood simply packages the rights of CFD/contract trading into an on-chain visible Token, but: it cannot be freely transferred, it can only be closed within Robinhood, it is just the “trading certificate” that is on-chain, rather than the stock rights being on-chain.

Typically, one of the core advantages of tokenized assets is transferability (on-chain). “Non-transferable” means that this token is merely a record in the internal system of Robinhood, rather than a blockchain asset that can circulate freely and be traded in a decentralized manner. It is simply a digital certificate used to track your “entitlement,” and this certificate cannot leave the Robinhood ecosystem.

Traditional securities trading is strictly regulated by the SEC, ESMA, and FINRA; Robinhood, which only offers complex financial products in Europe, falls under a “looser” regulatory category and even directly avoids the compliance framework of the securities market;

Bubble Chain: “Stablecoin compliance → Funds entering crypto → Speculative trading of unregulated derivatives or air coins.”

The business model of Robinhood is a part of the “speculative trading” within this chain.

The safety of funds completely depends on the solvency and credit status of Robinhood Europe. Once Robinhood Europe encounters financial problems, your investments may become worthless, and there is no investor compensation mechanism under the usual bankruptcy protection of financial institutions. This is fundamentally different from strictly regulated securities exchanges and brokers.

The Role of Blockchain: In this case, blockchain functions more like an internal ledger and a technical gimmick used to issue non-transferable Tokens to track customers’ derivatives positions, rather than endowing assets with the characteristics of decentralization, transparency, and free circulation. It has not truly realized the vision of “tokenization of stocks” that promotes disintermediation, increased liquidity, reduced barriers, and enables on-chain free trading.

Robinhood’s General Manager of Crypto, John Krebriat, stated: “We want to address historic investment inequality—now everyone can buy these companies.”

This is a straightforward and blatant misleading slogan.

Why does Robinhood buy the underlying stock 1:1?

Answer: It is to hedge the market risk as a market maker (counterparty).

Robinhood is essentially the “counterparty to your trades” - you profit while they lose, and you lose while they profit. This is similar to the relationship between a casino dealer and players.

What are the two types of risks that are hedged?

A. Market Price Risk
If there is no hedge, the rise in the underlying stock will cause Robinhood to lose money (because it owes customers the increase in value).
By buying stocks, Robinhood hedges its losses in contracts with profits from rising stock prices.

B. Exchange Rate Risk (involved in some products)
If the token is priced in euros and the stocks are priced in US dollars, then it is necessary to hedge against the risks caused by exchange rate fluctuations.
But the most critical is the first one: market price risk.

This is a centralized “trading loop” designed by Robinhood, where users do not own the stocks but rather hold a liability contract from Robinhood. It hedges its market risks through the stock spot market, but users still bear the credit risk of Robinhood.

Robinhood Europe is not a traditional exchange; it is not a platform for matching buyers and sellers. It is more like a market maker in over-the-counter (OTC) trading.

As the sole counterparty, Robinhood Europe may theoretically have motives that conflict with customer interests. For example, it might manipulate its quotes under certain market conditions or make decisions during the clearing process that are unfavorable to customers. While compliant companies usually have internal regulations to curb such behavior, the risks still exist.

This is regulatory arbitrage.

• Since there is already a mature securities market, why do we need tokenization of stocks? What is the significance?
• If tokenized stocks are anchored to real stocks, and the underlying assets are publicly listed companies, should they be subject to the same regulation?
• The current regulation of cryptocurrencies / DeFi is clearly more lenient than that of traditional securities markets. Is there a possibility of “regulatory arbitrage”?
• Does this model belong to a bubble? Will it burst with stricter regulations such as stablecoin legislation?

According to the principle of “same assets, same risks, same regulations,” Robinhood is essentially a form of regulatory arbitrage.

Traditional stocks are regulated by the SEC and FINRA, while tokenized stocks on the Robinhood platform are not subject to these constraints, relying only on European regulations (such as MiFID II), leading to regulatory arbitrage. Although the 2025 GENIUS Act regulates stablecoins, it has not yet clarified tokenized derivatives, creating a gray area.

The 24/7 trading of tokenized stocks and low entry barriers attract speculators, but the lack of investor protections found in traditional markets (such as SIPC insurance) could be seen as unfair competition.

The same underlying assets, different legal structures, and different regulatory intensities lead to unfair competition; this is a typical case of regulatory arbitrage, not technology-driven financial innovation, but rather speculation-driven arbitrage innovation.

• The underlying asset is the stock of a listed company, and the inherent risk is consistent with traditional securities;
• Investors face price volatility, corporate governance risks, and information asymmetry as well.
• If there is no unified regulation, regulatory arbitrage may occur: that is, the same asset may enjoy different regulatory treatments on different platforms.

What impact does this have on altcoins?

It must first be pointed out that over the past century, U.S. securities regulation has generally been regarded as a success—markets are deeper, valuations are more reasonable, and fraud is less frequent, all due to the mandatory disclosure by listed companies.

Some market views suggest that tokenization of traditional high-quality assets, supported by clear business models, a legal and compliant regulatory framework, and stable real returns, is becoming the new favorite for on-chain funds, creating a siphoning effect on the altcoin market. In particular, those tokens that lack real revenue models, have immature products, and rely solely on narratives to support their market value are facing liquidity exhaustion and survival pressure.

There is also a viewpoint that altcoins may not necessarily disappear, but it is becoming increasingly difficult for them to survive. In the crypto market, every new high-quality asset is a blow to those price assets that rely on consensus for maintenance. The only way for altcoins to survive in the future is to create actual application value, and it must be the kind of value that can generate real income. All tokens that cannot land and survive solely on narrative will gradually enter a death spiral. There may still be altcoin seasons, but the era of widespread appreciation of thousands of coins will never return; the simple model should have become a thing of the past.

First, let’s define altcoins:

Altcoins are any cryptocurrencies issued after Bitcoin. The name of these coins is attributed to the phrase “alternative coins” or altcoins. Simply put, this is a term that describes all digital assets that are alternatives to Bitcoin.

The term “Shanzhai coin” originates from the Chinese phrase “Shanzhai goods,” which carries a mocking connotation of counterfeit products. Since Bitcoin is the first cryptocurrency in the world, many coins that mimic Bitcoin’s technology have been launched subsequently, hence the term Shanzhai coin.

But in the real cryptocurrency market, altcoins refer to:

• Lack of technical originality or practical application scenarios
• There is no clear business model or real demand support.
• cryptographic assets aimed at short-term speculation, pump and dump

They often mimic the technical architecture of mainstream cryptocurrencies (such as Bitcoin and Ethereum), but do not have substantial innovations or value support.

These projects often tout “decentralization,” “blockchain finance,” and “Web 3.0 revolution,” but in reality, they are just new speculative tools that are the same old wine in a new bottle.

They offer a seemingly ‘get rich quick’ possibility, attracting countless gambler-like speculators.

The final result is: a few early participants cash out and leave a large number of retail investors standing at a high position, ultimately losing everything.

The reason why altcoins, air coins, or meme coins attract countless speculators is that they seemingly offer a possibility of getting rich overnight. Investors rush in like gamblers to bet on the slim chances, but ultimately they may lose everything, leaving behind only unverifiable legends of wealth that continue to attract speculators.

The “wealth myths” in the market (such as the surges of “Dogecoin” and “Shiba Inu Coin”) are amplified and disseminated indefinitely, while countless cases of losses are selectively ignored. This information asymmetry, combined with the inherent gambler’s psychology and FOMO (fear of missing out) emotions, leads investors to approach the market like a casino, with a mindset of risking small probabilities for large returns, ultimately falling into losses.

However, speculators tend to selectively ignore risks, and their memory is short-lived; getting rich overnight is their only focus and pursuit.

So the conclusion is clear:

Moreover, regardless of the inherent regulation of KYC for tokenized stocks, the design structure that anchors real stocks does not meet the demands of altcoin speculators, and altcoins, even MEME coins, will continue to attract the interest of speculators.

Are the so-called “tokenized stocks” part of a new round of bubbles?

From multiple perspectives, it is indeed:

Regulation is not yet clear.

Stablecoin legislation, such as MiCA and other regulations, has not yet been fully implemented and remains in a gray area;

Technical innovation is limited.

Blockchain is only used for recording and settlement, and has not brought about a real improvement in financial efficiency.

Market sentiment drives

Investors are chasing the “blockchain finance” concept, ignoring the essence of the products;

The speculative atmosphere is strong.

The characteristics of low barriers to entry, small units, and ease of trading attract a large number of retail investors to participate.

Potential systemic risk

If Robinhood or similar platforms default, it could affect a large number of retail investors.

Against the backdrop of the gradual implementation of stablecoin legislation, the market’s attention to “compliance” and “tokenization” is extremely high. Robinhood may leverage this market sentiment to package its high-risk derivatives products as the popular concept of “tokenized stocks,” attracting investors who wish to participate in the cryptocurrency concept within a compliance framework.

Robinhood’s tokenized stocks are essentially price betting agreements and also serve as a tool catering to speculators.

After going live on July 1, 2025, the trading volume surged by 200%, and speculative sentiment was evident.

Declaration:

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