Original author: Shao Jiayi, Huang Wenjing

introduction

RWA (real-world assets on the blockchain) is rapidly becoming the mainstream narrative in the Web3 world, and one of the particularly "down-to-earth" directions - Tokenized Stocks - is one of the most feasible directions at present.

The reason is simple:

• The underlying assets are mature enough that no effort needs to be spent on “proving value”;
• The technical threshold is relatively controllable, and there are already established tools for on-chain issuance and mapping;
• The regulatory path is becoming increasingly clear, especially in Europe and some offshore regions, where real projects have been implemented.

However, when many people hear the word "stock", they will subconsciously think: Is this a security? Can it be sold to retail investors? Do I need a license?

But in reality, some projects have found a way to "take both ends into account". They can both reduce compliance pressure and reach the retail market. Representative cases are:

• Robinhood: the most popular retail securities platform in the United States;
• xStocks: Stock token trading is available in non-EU and non-US regions, and can be bought and sold on the chain.

As a lawyer focusing on Web3 compliance, I also began to frequently receive similar inquiries:

• How do stock tokenization platforms work?
• Is there any chance for a small or medium-sized team like ours to do this?
• If we want to do it, where should we start and how can we build the structure legally?

This article does not use big words or lay out concepts, but focuses on answering one question:

If you want to create a stock tokenization platform that is accessible to retail investors and has controllable compliance pressure, what should you do?

The Robinhood Model: The Ultimate Productization of Retail Securities Trading

Robinhood is not an on-chain platform in the traditional sense, but its operating model is extremely inspiring for Web3 product design.

1. Core features:

• The interface is extremely simple, eliminating the complex terminology of traditional brokerage firms;
• Zero commission, no threshold for deposit, directly serving retail investors;
• All securities clearing and custody are completed by partner institutions;

2. Place of registration and compliance structure:

• Robinhood Markets Inc. was founded in Menlo Park, California, USA;
• Subsidiaries Robinhood Financial LLC and Robinhood Securities LLC hold U.S. securities trading licenses and are subject to dual supervision by the SEC and FINRA;
• In addition to securities business, Robinhood also has subsidiaries in the UK and other places to engage in crypto asset services, but its stock trading services are explicitly not open to non-US users.

3. Reasons for regional restrictions:

Robinhood only serves the US market for two main reasons:

• If securities trading is opened to overseas users, it will have to face complex securities sales licenses and registration obligations in the EU, Canada, Japan and other regions;
• There is a trend of strengthening localized supervision in securities supervision in various regions, and the compliance costs of overseas expansion are high and the risks are uncertain.

xStocks model: Token mapping real stocks + non-securities statement + for retail investors

xStocks is one of the few platforms that turns “stock price mapping” into tokens and provides trading, allowing retail investors to participate, but deliberately avoiding the red line of securities identification.

1. Core structure:

• Each xStock Token is mapped 1:1 to a stock and is actually held by a brokerage firm or custodian institution;
• Tokens do not confer voting rights, dividend rights, or governance rights, and the platform does not promote them as "securities";
• The platform adopts the structure of "automatic reinvestment" in the form of tokens for the "dividends" of token holders, that is, if the stock dividends are paid, the user's wallet will not receive cash, but an equivalent token increment;
• Users need to complete basic KYC, and tokens can be traded on the chain, but access is not open to users in highly regulated jurisdictions.

2. Entity structure and place of registration:

• The issuer of the Token is Backed Assets (JE) Limited, which is registered in Jersey, not part of the EU and not directly subject to MiCA or Prospectus Regulation;
• The service provider is Payward Digital Solutions Ltd., which is registered in Bermuda, a region with loose financial regulation;
• xStocks products are issued by non-U.S. entities and are deliberately designed to avoid the application of U.S. law.

3. Prohibited areas and restriction logic:

xStocks explicitly states that it does not provide services to the following countries or regions:

The United States (including all US Persons), EU member states, the United Kingdom, Canada, Japan, Australia.

The reason is:

1. These regions have extremely strict supervision on securities issuance. If xStocks is sold locally, it is likely to be classified as illegal securities issuance;

2. The platform has not obtained licenses or compliance exemptions in these regions, so it actively evades regulation through IP restrictions + KYC restrictions;

3. The issuing entity chooses to register in Jersey and Bermuda, which is also a common strategy to reduce compliance risks.

The essential differences and common implications of these two models

The two paths essentially represent two logics:

• Robinhood: “Doing securities within a regulatory framework”
• xStocks: “Structuring to avoid securities regulation”

Entrepreneurs do not have to choose sides, but should learn how they use legal structures, technical paths and compliance isolation to make their platforms "able to go online, able to grow, and avoid pitfalls."

If you really want to make one, how should it be implemented structurally?

Stock tokenization is not as simple as copying a contract. You need to design at least the following roles:

The key is:

• The platform is responsible for “price mapping + token issuance + user interaction”;
• The partner is responsible for "position holding + reporting + risk isolation";
• The two parties are linked through agreements and information synchronization mechanisms, but regulatory responsibilities are clearly separated.

Which institutions need to be cooperated with and which agreements need to be signed?

Stock tokenization is not an isolated system and must rely on the following resources:

1. Partners:

• Licensed securities firms (responsible for physical stock custody or transaction execution);
• Blockchain issuance platform and technical parties (deployment contract + permission control module + oracle);
• Legal advisor (Token qualitative analysis, structural design, user agreement);
• KYC/AML service providers;
• Smart contract auditor.

2. The agreement to be signed includes:

• Token issuance white paper + legal disclosure statement (Offering Terms);
• Asset Custody Service Agreement/Custodial Agreement;
• Platform User Agreement + Risk Disclosure Statement (T&C);
• Compliance service integration protocol (KYC, IP blocking, etc.);
• Token and platform linkage contract description document.

A few things you may not realize but must consider

Once these points are touched, what you will face is not social media FUD, but real regulatory action:

• Tokens cannot be given any "income promise", "governance rights" or "claim rights";
• Not open to users in highly sensitive jurisdictions such as the European Union, the United States, and Japan;
• Do not use expressions such as "stock", "shareholder rights", "dividends" etc.;
• Region and identity must be controlled through both technology and protocol;
• A legal qualitative opinion, risk disclosure statement and KYC audit records should be prepared for reference.

Whether you can do it depends not on the license, but on the structure

Stock tokenization is a feasible project direction, but it requires careful design. It is neither "unregulated" like NFT nor "closed rules" like traditional securities. What you need to do is not to break through radically, but to:

• Find a suitable landing spot
• Design a clear structure
• Be clear about what your token represents
• Avoid touching the three red lines of users, market and law

This market is not saturated . Instead, it is in a vacancy where institutions value it but act cautiously, and entrepreneurs are interested but dare not enter the market. Don’t look at what others have done. The stock tokenization track is not full of people yet. When the market is occupied by giants, you can only be a user.

As a Web3 compliance lawyer, I would rather help you design a platform that "regulators can understand, users are willing to participate, and technology can run." I don't ask for everything to be done in one step, but I must get it right from the beginning.