Two Paradigms of Stock Tokenization: The Battle of Open and Closed

Tokenization of real-world assets has become a hot topic in the financial sector. In particular, stock tokenization is unfolding as several fintech companies enter the market, driven by blockchain technology. For the first time, global investors have the opportunity to trade "digital stocks" of companies like Apple and Tesla 24/7. This article will delve into the underlying logic of current mainstream stock tokenization products, focusing on "how to achieve it" and "where the risks lie," providing reference for investors, developers, and regulators.

We will conduct an in-depth comparative analysis using two typical cases: xStocks, representing the "Open DeFi" path, and Robinhood, representing the "compliance walled garden" path. We will explore how these platforms achieve a balance between strict regulation, technical implementation, and market opportunities, what paths they have each chosen, and what fundamental differences exist in their underlying logic and compliance design.

1. The Compliant "Tightening Spell" and "Amulet" - The Underlying Logic of Two Mainstream Models

The primary challenge of stock tokenization is compliance. Any attempt to "bring" traditional securities onto the blockchain must confront complex financial regulations. The market has formed two distinctly different compliance paths: 1:1 asset-backed security tokens and derivative contract tokens. The underlying legal frameworks and operational logics of these two models are markedly different, determining their product forms, user rights, and risk characteristics.

Model One: xStocks - Embracing the Open Road of DeFi

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

Legal Framework and Market Performance: The compliance design of xStocks maximizes the avoidance of legal risks through multi-layer legal entities and a clear regulatory framework, while embracing the openness of blockchain. Currently, xStocks supports 61 types of stocks and ETFs, of which 10 have generated on-chain transactions, demonstrating initial market vitality. After being supported by certain trading platforms, its trading volume has experienced explosive growth. As of July 1, the daily trading volume has reached $6.641 million, with more than 6,500 trading users and over 17,800 transactions.

Issuance Entity and Regulatory Framework: xStocks is issued by the Swiss company Backed Finance, and its operations adhere to the Swiss DLT Act. The choice of Switzerland as the legal headquarters is due to the country's relatively clear and friendly regulatory environment for digital assets and blockchain innovation.

Special Purpose Vehicle ( SPV ): This is the cornerstone of the entire architecture. Backed Finance has established a special purpose vehicle (SPV) in Liechtenstein. This SPV acts like an "asset vault", whose sole function is to hold real stocks. This design achieves risk isolation: even if the platform or issuer that users trade on encounters operational issues, the underlying assets held in the SPV remain safe and independent.

Asset-backed and liquidity strategies: xStocks has established a transparent asset-backed and dual-track liquidity system.

1:1 pegged ( coin = 1 share of ): Each xStock Token circulating on the chain corresponds strictly to a share of real stock held in a third-party custodian. This 1:1 anchoring relationship is the core of its value proposition. Currently, the total number of stock tokens from certain companies has exceeded 10,000.

Issuance process: Qualified professional investors can apply for a Backed Account to purchase stocks through Backed. Backed acts as a primary investor, buying stocks at brokers, which are then custodied by a third-party institution. Finally, xStocks mints a corresponding number of tokens based on the quantity of stocks purchased and returns them to the primary investors. These primary investors can issue and redeem stock tokens at any time.

Proof of Reserve(: xStocks integrates with the oracle network. This means that anyone can query and verify the reserves of Backed Finance on-chain in real-time and autonomously, ensuring that the actual number of shares held is sufficient to support all issued Tokens.

Dual-track liquidity strategy:

1. Centralized Exchange )CEX( Market Maker: In mainstream exchanges, professional market makers are responsible for providing liquidity, ensuring that users can easily buy and sell xStocks just like trading regular cryptocurrencies.

2. Decentralized Finance ) DeFi ( Protocol: The token of xStocks is open, and users can deposit it into DeFi protocols on the Solana chain ) such as lending platforms and DEX liquidity pools (, providing liquidity by themselves and earning returns. Currently, xStocks has collaborated with DEX aggregators and lending protocols to fully utilize the composability of DeFi, creating additional value for assets. For example, the token with the highest trading volume, SP500 ) SPY (, has reached a USDC-denominated liquidity of 1 million dollars on the chain.

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

Core Definition: Unlike xStocks, the stock tokens purchased by users on the Robinhood platform do not legally represent ownership of stocks, but rather financial derivative contracts that track the prices of specific stocks, signed between the user and Robinhood Europe. Its legal nature is over-the-counter ### OTC ( derivatives, and the on-chain tokens are merely digital certificates of the rights to this contract.

1. Legal Framework and Technical Implementation

Robinhood's model is a very pragmatic form of "regulatory arbitrage" that cleverly packages products as existing financial instruments with clear regulatory frameworks, allowing for rapid deployment at very low costs.

Issuing Entities and Regulatory Framework: These tokens are issued by Robinhood Europe UAB, an investment company registered in Lithuania and regulated by its central bank. Its products are regulated under the EU's MiFID II) Markets in Financial Instruments Directive II( framework. According to MiFID II, these tokens are classified as derivatives, thereby circumventing more complex securities issuance regulations.

Low-cost rapid deployment: Robinhood has deployed 213 stock Tokens on the Arbitrum chain, with a total cost of only 5.35 dollars ) on-chain gas fees (, demonstrating the extremely high efficiency of utilizing Layer 2 technology. Among them, 79 Tokens have set up metadata, preparing for subsequent transactions.

Pioneering attempt: Robinhood has made its first attempt at tokenization of stocks in non-public companies, launching tokens for OpenAI and SpaceX, aiming to seize opportunities in the high-value field of private equity. Currently, Robinhood has minted 2,309 OpenAI)o( tokens.

2、"Walled Garden" style technology and compliance design

The technical implementation of Robinhood is closely linked to its compliance strategy, together building a closed but compliant ecosystem.

On-chain KYC and Whitelist: Through the reverse analysis of the Robinhood stock Token smart contract, it was found that the contract incorporates strict permission controls. Every Token transfer ) transfer ( operation will trigger a check to verify whether the recipient's address is in the "approved wallet" registry maintained by Robinhood. This means that only EU users who have passed Robinhood KYC/AML can hold and trade these Tokens, thereby forming a "Walled Garden" ) Walled Garden (.

Limited DeFi composability: The direct consequence of this "walled garden" model is that its stock Tokens can hardly interact with the vast, permissionless DeFi protocols. The on-chain value of the assets is firmly locked within the Robinhood ecosystem.

Future plan ) Robinhood Chain (: To better serve its RWA strategy, Robinhood plans to develop its own Layer 2 network—Robinhood Chain—based on the Arbitrum technology stack, demonstrating its ambition for control over underlying technology.

Although Robinhood's model has found a compliance path within the EU framework, it has also sparked considerable controversy and potential risks.

"Fake Equity" Controversy: The most representative event is the launch of the OpenAI and SpaceX Tokens. Shortly after, OpenAI officially declared that it denied any collaboration with Robinhood and clearly stated that these Tokens do not represent equity in the company. This incident exposed the significant risks of the derivatives model in terms of information disclosure and user understanding.

Centralization risk: The security of users' assets and the execution of transactions are entirely dependent on the operational status and credit of Robinhood Europe. If there are issues with the platform, users will face counterparty risks.

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3. Summary of Comparison between Two Major Models

Through the above analysis, we can clearly see the fundamental differences between the two models. The xStocks model is more aligned with the open spirit of Crypto Native and DeFi, while the Robinhood model seeks a "shortcut" within the existing regulatory framework.

Key Points: The path of xStocks is "asset on-chain", which attempts to truly and transparently map the value of traditional assets into the blockchain world, embracing open finance. On the other hand, Robinhood's path is "business on-chain", utilizing blockchain as a technological tool to package and deliver its traditional derivatives business, essentially resembling a blockchain upgrade of "CeFi") centralized finance(.

II. The "Song of Ice and Fire" in Technical Architecture - Open DeFi and Walled Gardens

Under the compliance framework, the technical architecture serves as the backbone for realizing the product vision. The differences in technology selection and component design between xStocks and Robinhood also reflect their two different philosophies of "open" and "closed."

) 1. Choosing the underlying public chain: the triangular game of performance, ecology, and security.

Choosing which public chain to use as the "soil" for asset issuance is a strategic decision that concerns performance, cost, security, and ecology.

xStocks chooses Solana: Its core motivation is the pursuit of extreme performance. Solana is known for its high throughput with theoretical TPS reaching tens of thousands, low transaction costs usually below $0.01, and sub-second transaction confirmation speeds. This is crucial for stock tokens that require support for high-frequency trading and real-time interaction with complex DeFi protocols. However, several historical network outages have also exposed its challenges in stability, which is a risk that must be accepted when choosing Solana.

Robinhood selects Arbitrum: Arbitrum is a Layer 2 scaling solution for Ethereum, and the logic behind its choice is to "stand on the shoulders of giants." By adopting Arbitrum, Robinhood not only gains higher performance and lower costs compared to the Ethereum mainnet, but more importantly inherits Ethereum's unparalleled security, vast developer community, and mature infrastructure. In addition, Robinhood has announced plans to migrate in the future to a self-built Layer 2 network based on Arbitrum technology, specifically optimized for RWA, which demonstrates its ambition for long-term planning.

Comparative Analysis: This is not a simple question of "who is better", but a reflection of strategic paths. Solana is a single chain that pursues "integrated high performance", while Arbitrum represents a "modular" path that inherits Ethereum's security. The former is more aggressive, while the latter is more robust.

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) 2. Analysis of Core Technology Components

In addition to the underlying public chain, several key technical components together constitute the core functionality of stock tokenization products.

Smart Contract Design:

xStocks(SPL Token): As a standard Token on Solana, (SPL), its smart contract is designed to be freely transferable, similar to ERC-20 on Ethereum. This open design serves as the technical foundation for its seamless integration with DeFi protocols ###, such as being used as collateral on the Kamino lending platform (.

Robinhood)Permissioned Token(: As mentioned earlier, its contract embeds transfer restriction logic. Each transaction calls an internal whitelist registry for validation, which is the technical core of its "walled garden" model and the fundamental reason for its isolation from open DeFi protocols.

The key role of the oracle )Oracle(, taking Chainlink as an example ):

Price Information: The value of stock tokens needs to stay in sync with real-world stock prices. Oracles ( such as Chainlink Price Feeds ) play the role of data bridges, providing stock information from multiple reliable data sources.