Tokenized stocks are technically feasible but face challenges in compliance, asset custody, and market acceptance.
On May 22nd, the global cryptocurrency exchange Kraken announced a partnership with Backed Finance to launch "xStocks," a tokenized stock and ETF trading service. The initial offering includes over 50 U.S.-listed stocks and ETFs, such as Apple, Tesla, and Nvidia. In recent years, the integration of blockchain technology with traditional finance has accelerated, with crypto exchanges leading this transformation. What began with the tokenization of dollars and bonds is now extending to U.S. stocks through these platforms.
Strategic Expansion
Kraken, founded in 2011, is one of the world's oldest cryptocurrency exchanges, renowned for its security and compliance. As competition in the crypto market intensifies, Kraken has been expanding its business boundaries. In 2024, Kraken acquired the futures trading platform NinjaTrader and launched traditional trading services for over 11,000 U.S. stocks and ETFs in select U.S. states.
Tokenized stocks refer to the conversion of traditional stock or ETF权益 into digital tokens using blockchain technology. Each token represents fractional ownership of the underlying asset. These tokens can be traded 24/7 on the blockchain, breaking through the time and geographical limitations of traditional stock markets. Kraken's xStocks is built on the Solana blockchain and is planned for non-U.S. clients, covering markets in Europe, Latin America, Africa, and Asia. Backed Finance is responsible for acquiring and custodying the underlying stocks, ensuring each token is 1:1 backed by real assets, and allowing holders to redeem the tokens for their cash value at any time.
This initiative is not an isolated case. In 2025, global crypto exchanges are accelerating their penetration into traditional finance. For example, Bybit recently announced support for trading 78 top global stock assets using USDT, covering tech giants (like Microsoft and Google), consumer goods companies (like Coca-Cola), and energy firms (like ExxonMobil). Users can trade using the stablecoin USDT, benefiting from low barriers to entry and high liquidity. Industry trends indicate that tokenized assets are becoming a bridge between crypto exchanges and traditional finance.
History of Tokenized Stocks: FTX and Binance
The concept of tokenized stocks is not new. As early as around 2020, crypto exchanges began experimenting in this area, with FTX and Binance being the most notable examples. FTX, founded in 2019, was once the world's third-largest crypto exchange, known for its innovative products. In 2020, FTX launched tokenized stock trading, allowing users to trade digital tokens representing stocks like Tesla and Apple on its platform. These tokens were provided by FTX's Swiss subsidiary, Canco GmbH, and were backed by real stocks held by third-party brokers. FTX's tokenized stocks supported fractional trading, enabling users to buy portions of stocks for as little as $1, significantly lowering the investment barrier. FTX also experimented with tokenized ETFs, such as the SPDR S&P 500 ETF (SPY).
However, FTX's tokenized stock business was limited by compliance issues and market volatility. In November 2022, FTX filed for bankruptcy due to mismanagement of funds and fraud scandals, and its tokenized stock business was terminated. Nevertheless, FTX's attempt demonstrated the market demand for tokenized stocks, particularly among emerging markets and younger investors.
In 2021, Binance also launched tokenized stock trading, initially including stocks like Coinbase and Tesla. These tokens were settled using Binance's stablecoin BUSD and supported fractional trading, aiming to provide global users with convenient access to U.S. stock investments. However, Binance's tokenized stock business soon encountered regulatory resistance. Financial regulators in several countries questioned its compliance, arguing that tokenized stocks might circumvent the regulatory frameworks of traditional securities markets. Later that year, Binance announced the termination of the service to focus on its core crypto trading.
The experiences of FTX and Binance show that while tokenized stocks are technically feasible, they face challenges in compliance, asset custody, and market acceptance. Kraken's launch of xStocks clearly learns from these past lessons, emphasizing cooperation with regulators and ensuring asset transparency and security through Backed Finance.
Why Exchanges Are Embracing Tokenized Stocks
The rush of crypto exchanges into tokenized stocks is driven by both technological innovation and strategic market considerations. As of April 2025, the total market capitalization of U.S. stocks is approximately $52 trillion, accounting for over 45% of the global stock market. This massive market share has led exchanges to expand their user base and capture a piece of the traditional finance pie. The user base of crypto exchanges primarily consists of younger, risk-tolerant investors, but the traditional financial market is far larger than the crypto market. Tokenized stocks provide an entry point for exchanges to tap into traditional finance, attracting traditional investors interested in stocks and ETFs. For example, Kraken's xStocks targets non-U.S. clients, precisely catering to investors in emerging markets who have strong demand for U.S. stocks but are restricted by traditional access channels.
Moreover, the core advantages of blockchain technology include decentralization, transparency, and efficiency. Tokenized stocks leverage blockchain to enable 24/7 trading, instant settlement, and low-cost operations, addressing issues like limited trading hours and high intermediary fees in traditional stock markets. Additionally, blockchain supports fractional trading, allowing small-scale investors to participate in high-value assets, enhancing financial inclusion.
In the context of intensifying competition among crypto exchanges, tokenized stocks have become a tool for differentiation. Kraken's xStocks not only provides trading functionality but also allows users to use the tokens as collateral in DeFi protocols, enhancing asset liquidity and application scenarios. This cross-chain integration offers users more diversified investment options and can strengthen the ecosystem stickiness of the exchange.
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Impact on Traditional Stock Exchanges
The tokenized stock businesses of exchanges like Kraken pose certain challenges to traditional stock exchanges (such as NASDAQ and NYSE) while also presenting opportunities for collaboration and transformation. Traditional stock exchanges typically operate during specific hours on business days, and cross-border investments involve high fees and long settlement cycles. The 24/7 trading and instant settlement features of tokenized stocks directly challenge the operational models of traditional exchanges. Especially in emerging markets, investors may prefer gaining exposure to U.S. stocks through crypto exchanges rather than traditional brokers.
Faced with the impact of blockchain technology, traditional exchanges are not without countermeasures. Institutions like NASDAQ have begun exploring blockchain applications in securities settlement and clearing. For example, NASDAQ has partnered with R3 to develop an asset management platform based on the Corda blockchain. In the future, traditional exchanges may collaborate with crypto exchanges to launch their own tokenized products or provide more efficient trading services through technological upgrades.
The rise of tokenized stocks has prompted regulators to re-examine the compliance framework for blockchain finance. This provides traditional exchanges with opportunities to cooperate with regulators, establishing industry standards to maintain market fairness and stability. For instance, recent enforcement actions by the U.S. SEC against crypto exchanges have shown a more lenient approach, indicating a growing openness to blockchain innovation.
Conclusion
Kraken's xStocks, Bybit's USDT stock trading, and the early attempts by FTX and Binance collectively outline the evolution of tokenized stocks. This trend is not only a product of the integration of blockchain technology and traditional finance but also a reflection of the diversification of global investment demand and technology-driven changes. For investors, tokenized stocks offer a more flexible and low-cost method of asset allocation; for exchanges, they are a strategic weapon for capturing market share and differentiating themselves; for traditional stock exchanges, they represent both a challenge and an opportunity for technological upgrade and market expansion.
However, the widespread adoption of tokenized stocks still faces multiple tests in compliance, technology, and market education. Exchanges like Kraken need to find a balance between innovation and regulation, ensuring asset security and user trust. In the future, as blockchain technology matures and the regulatory environment becomes clearer, tokenized stocks are expected to become an important component of the global financial market.
Frequently Asked Questions
What are tokenized stocks?
Tokenized stocks are digital representations of traditional stocks or ETFs on a blockchain. Each token is backed 1:1 by the underlying asset and can be traded 24/7, offering fractional ownership and increased accessibility to investors.
How do tokenized stocks work?
They are created by acquiring and custodying the actual stocks, then issuing corresponding tokens on a blockchain. These tokens can be traded on supported platforms, and holders can redeem them for the cash value of the underlying asset at any time.
What are the benefits of tokenized stocks?
Key benefits include 24/7 trading, lower transaction costs, fractional ownership for small investors, and the ability to use tokens in DeFi protocols for additional liquidity and earning opportunities.
Are tokenized stocks regulated?
Regulation varies by jurisdiction. While some platforms work with regulators to ensure compliance, tokenized stocks often operate in a gray area, and investors should verify the legal status and security measures of the offering platform.
What risks are associated with tokenized stocks?
Risks include regulatory uncertainty, potential custody issues, market volatility, and the technological risks associated with blockchain platforms, such as smart contract vulnerabilities.
Can U.S. investors access tokenized stocks?
Currently, many tokenized stock services, like Kraken's xStocks, are targeted at non-U.S. clients due to regulatory constraints. U.S. investors should check availability based on their location and applicable laws.