Will Robinhood’s tokenized shares REALLY take over the world? Pros and cons

Uncover key highlights within the Crypto area. This article dives into: “Will Robinhood’s tokenized stocks REALLY take over the world? Pros and cons”.

Ever since Robinhood co-founder Vlad Tenev bounded onto the stage in Cannes two weeks in the past, channeling old-time film star David Niven in his white go well with and cravat, all people’s been speaking about tokenized shares.

Vlad Tenev on Bloomberg stay from Cannes

It definitely looks like an enormous deal for mainstream adoption of crypto. Robinhood is a TradFi equities platform with 26 million retail prospects tokenizing shares on Arbitrum and providing them to EU customers by means of its user-friendly app interface.

There aren’t any crypto wallets or seed phrases required — and Tenev suggests it’s a check run for a wider integration of crypto, an indication of “what Robinhood itself could look like, built entirely on blockchain technology.” 

That similar week, Gemini launched its personal tokenized shares on Arbitrum within the EU, and 60 of Backed’s xStocks went stay on Solana, supported by Kraken, Bybit, Bitrue and Gate.io.

Pic of David Niven, so that you get the boomer reference.

Tokenized shares could also be simply months away from launching within the US too, after dShares issuer Dinari was awarded a broker-dealer license and Ondo Finance acquired Oasis Pro to utilize its licenses.

Coinbase has wished to launch tokenized equities within the US since 2018 and is reportedly searching for the Securities and Exchange Commission’s permission to lastly accomplish that. Chief regulation officer Paul Grewal known as tokenized equities “the future of finance, and a huge priority” for the corporate.

But this isn’t the primary time tokenized equities have been tried, and the enjoying area is plagued by the our bodies of issuers from the final cycle.

And whereas tokenization brings many benefits, there are appreciable downsides to the fashions Robinhood and Kraken use to tokenize shares. Here are the professionals and cons of tokenized equities in 2025.

Con: Tokenized shares aren’t actually shares in any respect

Critics argue that the tokenized fairness provided by xStocks and Robinhood is only a artificial illustration of a share held in a vault someplace and doesn’t confer any shareholder rights and protections that include actual possession.

In Robinhood’s case, the tokenized shares are thought of derivatives beneath EU regulations, even when the mannequin makes use of licensed US broker-dealers who difficulty tokenized shares and custody the underlying belongings. Tenev calls it “a derivative that’s backed by the real share.” 

xStocks are on Solana however increasing to different chains. (Kraken)

Backed’s xStocks tokens are additionally backed 1:1 by a Special Purpose Vehicle in Liechtenstein. Even if Kraken or Bybit collapses, the underlying belongings theoretically stay secure. The token will be redeemed for the offchain worth when the market opens. 

Alan Keegan, the DeFi portfolio supervisor at M31 Capital, says that is midway to the aim. “We’ve solved the issue of issuing a claim for an offchain asset onchain, via tokenizations,” however provides that there’s nonetheless an extended strategy to go.

“There are regulatory questions and legal infrastructure to be built to get to a place where an onchain transaction of a security actually represents a transfer of that security,” he says.

“Building the infrastructure to solve that problem requires a great degree of legal know-how, traditional finance know-how, blockchain sophistication, and (speaking frankly) money to spend.”

The closest instance up to now is Securitize’s Exodus token on Algorand, which represents direct authorized possession of the safety on Securitize’s shareholder registry

“It’s going to take time, but native tokenization is the necessary first step,” Securitize CEO Carlos Domingo tells Magazine. 

“You can’t decentralize stock ownership unless the stock is represented onchain in a compliant, legally valid way. Securitize is one of the only platforms in the US that can do this today.”

Neutral: Tokenized shares are in a authorized grey space

Tokenized shares function in a authorized grey space, with Robinhood and xStocks pushing the envelope in an analogous strategy to how Uber did with its ridesharing app a couple of years in the past.

Robinhood’s tokenized shares are solely accessible within the EU for now, however because it’s a listed firm working with a US-listed broker-dealer to supply US securities, US regulators may determine to close it down. 

The Securities Industry and Financial Markets Association (SIFMA) has already urged the SEC to reject buying and selling fashions that fall exterior the Regulation National Market System for equities.

However, new SEC chair Paul Atkins has expressed in-principle help. “Tokenization is an innovation. And we at the SEC should be focused on how we advance innovation in the marketplace,” Atkins instructed CNBC. 

OpenAI has additionally highlighted authorized points with Robinhood promoting tokens tied to its non-public inventory, noting the corporate must approve any switch and has not achieved so. The Bank of Lithuania subsequently opened an investigation.

Rob Hadick, normal accomplice at Dragonfly, mentioned on X that the danger for tokenholders is that non-public corporations find yourself “just cancelling equity sales altogether for those who violate their shareholder agreements.”

But for each SpaceX or OpenAI that isn’t eager on the tokenization of its non-public shares, there are a lot of extra who see it as an enormous alternative, in line with Tenev.

“Lots of private companies have been reaching out to me and asking… when can we get our own private stock tokenized?” he instructed podcaster Camila Russo not too long ago.

The larger authorized difficulty round promoting tokenized non-public inventory to the general public is that it primarily does an finish run across the disclosure and transparency guidelines governing publicly listed corporations. 

If corporations can promote non-public inventory and lift funds with out having to undergo the expense and compliance necessities of an preliminary public providing, why would anybody go public?

They solely “might” be unlawful which is fairly good for crypto (Carlos Domingo)

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Pro: 24-hour a day buying and selling for tokenized fairness and use in DeFi

Traditional markets are closed for round 81% of the hours in a given 12 months, that means tokenized shares that commerce across the clock can have an enormous benefit.

xStocks and Robinhood’s tokenized fairness are initially accessible 24/5, however Tenev says that shall be altering quickly.

Alan Keegan (M31 Capital)

“Where it starts to get really interesting is when we start plugging it into Bitstamp, which is when 24/7 trading becomes possible. And at that point, the stock tokens start to behave like other cryptos, Bitcoin and Ethereum,” Tenev mentioned. The subsequent section shall be to combine the belongings in DeFi.

“So you could imagine swapping collateralized lending and borrowing and really self-custody, which I think would be very powerful for stocks because it would untether your stock tokens from any individual brokerage or crypto provider.”

Keegan agrees that 24-hour a day performance, decrease prices, extra dependable execution and sooner settlements are huge benefits, together with the potential for composability within the DeFi ecosystem.

Pro: Blockchain platforms could outcompete TradFi platforms

Galaxy Digital’s evaluation argues that 24/7 buying and selling of tokenized fairness on Bitstamp is an enormous menace to conventional markets just like the New York Stock Exchange: 

“This directly challenges the deep concentration of liquidity and activity that gives major TradFi exchanges (e.g. NYSE) their competitive advantage […] more brokerages adopting a blockchain-based strategy for trading could put immense pressure on traditional exchanges.” 

But Securitze’s Domingo argues there’s a strategy to go but. 

“To reach a point where entire markets operate 24/7 on crypto rails, we need three things,” says Domingo. 

“Regulatory clarity that enables onchain trading venues to exist under a modified framework. Liquidity and infrastructure — market makers, secondary markets and settlement systems — that function reliably outside of traditional hours [and] institutional trust and adoption.”

TradFi isn’t going quietly both, with conventional markets already providing pre- and after-market buying and selling that helps cowl about 16 hours of the day.

The New York Stock Exchange’s digital Arca alternate additionally in February obtained approval to supply buying and selling 22 hours a day, 5 days every week, with the prolonged buying and selling anticipated to kick off this 12 months.

Con: After-hours volatility of tokenized shares

Hadick from Dragonfly factors out that buying and selling exterior of market hours could create a plethora of points. 

Rob Hadick has some points with tokenized shares. (Rob Hadick)

Using xStocks for instance, he says that when buyers purchase a token after hours, the SPV has to accumulate that inventory when the market opens, exposing the market maker to pricing dangers. 

This will imply increased spreads, and market makers could find yourself pulling liquidity solely throughout instances of market stress. “Which, if these things permeate DeFi lending and [derivatives], will create major cascading liquidation risk,” he says. 

He additionally notes the token solely entitles the holder to the offchain worth, that means shares could quickly return to that worth when markets open.  

“That means when people buy in times of that low liquidity euphoria on weekends/after hours, but the equities market then opens lower than token buyers expected, you will see quick, rapid losses at open, which will primarily be borne by retail,” says Hadick.

“Functionally, that means these are just not good products […] They cannot serve a sophisticated, real, and global equities market. And they likely won’t even serve the needs of the professional crypto traders who know they can get significantly better pricing and less risk elsewhere.”

Con: Fragmented liquidity accompanies inventory tokenization

Having a number of issuers tokenize shares may also fragment liquidity. Imagine a future the place it’s a must to select between “rTSLA, cTSLA, sTSLA, xyzTSLA, ethTSLA, solTSLA or hyperTSLA,” as crypto VX Mike Dudas joked.

Johann Kerbrat, Robinhood’s crypto chief, concedes that will probably be an issue.

“I hate the idea of having a Tesla-Kraken token and a Tesla-Robinhood token,” he mentioned. “Instead of actually moving forward and creating a better financial system, we’re splitting [up] liquidity.”

Domingo wryly requested on X, “Isn’t that exactly what Robinhood is doing?” Having a number of tokenized inventory issuers additionally enormously will increase the possibility that one of many issuers will blow up in some way, resulting in tokenholders being not noted of pocket.

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Con: Tokenized shares failed in 2021

Last cycle, Synthetix provided artificial tokens providing worth publicity to shares reminiscent of Tesla in 2021. sTSLA noticed a grand complete of simply 798 transactions earlier than being phased out that very same 12 months. 

Low liquidity performed a component, but it surely’s additionally potential that DeFi degens most well-liked to take a position on altcoins with a possible 10X upside, somewhat than a inventory that may transfer a couple of p.c in a month.

Everything previous is new once more. (SynthetixMemes)

Mirror provided artificial shares too, however collapsed alongside Terra. Binance additionally provided inventory tokens for a couple of months in 2021 earlier than delisting them following regulatory pushback within the UK and Germany.

Carlos Domingo (Securitize)

The most “successful” issuer final cycle was FTX, which provided tokenized shares with 1:1 backing by way of CM Equity. It peaked at virtually $1 billion in quantity in October 2021. But after FTX collapsed the next 12 months, it emerged that CM Equity had withdrawn from the settlement in December 2021, casting doubt on the backing of the tokens. Tokenized stockholders misplaced their funds within the collapse.

There is one survivor from these darkish days, nevertheless. Securitize tokenized the shares of wallet supplier Exodus in 2021, and with a market cap of $294.7 million, it accounts for 78% of in the present day’s total tokenized fairness market by itself. 

Domingo factors out it’s not 2021 anymore, with a positive regulatory atmosphere and the involvement of asset managers like BlackRock, Apollo and Hamilton Lane. “The credibility that top-tier asset issuers provide is now expanding from tokenized treasuries and private credit to other assets such as tokenized equities,” he says.

How will tokenized shares have an effect on crypto costs?

As the chain with the most important quantity of stablecoins and RWAs, Ethereum stands to profit from the broader adoption of tokenized shares. Robinhood’s selection of Ethereum L2 Arbitrum was seen as an enormous vote of confidence within the ecosystem and L2 roadmap.

Keegan says monetary establishments can tailor-make L2s to adjust to KYC and privateness necessities, together with transaction rollbacks.

“The most exciting feature of the L2 scaling infrastructure is that L2s can inherit the decentralization and credible neutrality guarantees of Ethereum while also being built to suit the needs of a specific use case (including regulatory compliance).”

Since the announcement, Ethereum’s worth has elevated by 1 / 4. Solana has additionally demonstrated over the previous two years that it’s extremely popular with retail merchants, so it additionally stands to profit from the broader adoption of xStocks.

Some argue that tokenized shares will compete for a similar capital that’s presently being unfold amongst altcoins. But Domingo argues {that a} halo impact is extra doubtless. 

“We don’t view tokenized stocks and altcoins as necessarily competing for capital. Instead, we are seeing traditional financial institutions embracing blockchain infrastructure, utilizing the same rails that power DeFi. That’s undeniably bullish for staying power and expansion of the broader crypto ecosystem.”  

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Andrew Fenton

Andrew Fenton is a journalist and editor with greater than 25 years expertise, who has been overlaying cryptocurrency since 2018. He spent a decade working for News Corp Australia, first as a movie journalist with The Advertiser in Adelaide, then as Deputy Editor and leisure author in Melbourne for the nationally syndicated leisure lift-outs Hit and Switched on, revealed within the Herald-Sun, Daily Telegraph and Courier Mail.

His work noticed him cowl the Oscars and Golden Globes and interview a few of the world’s largest stars together with Leonardo DiCaprio, Cameron Diaz, Jackie Chan, Robin Williams, Gerard Butler, Metallica and Pearl Jam.

Prior to that he labored as a journalist with Melbourne Weekly Magazine and The Melbourne Times the place he gained FCN Best Feature Story twice. His freelance work has been revealed by CNN International, Independent Reserve, Escape and Adventure.com.

He holds a level in Journalism from RMIT and a Bachelor of Letters from the University of Melbourne. His portfolio consists of ETH, BTC, VET, SNX, LINK, AAVE, UNI, AUCTION, SKY, TRAC, RUNE, ATOM, OP, NEAR, FET and he has an Infinex Patron and COIN shares.

Follow the writer @andrewfenton

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