Author: Liu Honglin

The term "stock tokenization" has been popping up frequently in market news. Whether it's explorations by companies like Robinhood and xStocks, or Nasdaq's research into the feasibility of stock tokenization, it seems a wave of "turning stocks into tokens" is emerging.

Many people regard it as a revolutionary breakthrough in the stock market, and some even say that it is the best entry point for the integration of blockchain and traditional finance.

But in my opinion, stock tokenization is more of a transitional product than a final form. Its hype stems from regulatory arbitrage and market speculation, rather than true business logic. To sum it up: stock tokenization is likely a false proposition; the real challenge lies in blockchain-based exchange systems .

The Essence and Transitional Value of Tokenization

To understand stock tokenization, we must first return to the essence of tokens. A token is a certificate that records "what I own and what rights I can enjoy." It can represent currency, points, tickets, or even stocks.

However, once a stock is tokenized, its legal attributes and shareholder rights do not fundamentally change simply by being placed on a blockchain. Tokenized stocks remain subject to company law, securities law, and exchange regulations; they carry neither more rights nor fewer responsibilities than traditional stocks. In other words, the essence of stock tokenization is simply the transfer of a certificate from system A to system B.

The question is: since tokenization does not change the rights and obligations of stocks and cannot solve the fundamental problems, why are there still so many companies and platforms promoting it in reality?

The reason lies in the gap between reality and ideal.

The ideal of "exchanges on-chain" will take time, but market demand and the urge for arbitrage won't wait. Therefore, before the system is fully updated, tokenized stocks have become a "patch-in" solution. They exist not because they change the fundamental nature of stocks, but because they fill the gap between the old system and the new technology.

The appeal of this model lies in three main aspects:

1. Lower barriers to entry : Investors no longer need to open cross-border accounts; they can access US stocks or other securities through a single wallet;

2. Improved liquidity : Tokenized stocks can be traded 24/7, bypassing the time constraints of traditional stock markets;

3. Create arbitrage opportunities : Price differences may appear between different markets, thereby attracting cross-market capital flows.

However, while these advantages may seem novel, they are essentially transitional. They exist because of institutional gaps between the current securities and crypto markets: geographical controls, account opening requirements, and inconsistent liquidation processes. Tokenized stocks exploit these imbalances, finding market space within these gaps.

To draw a more intuitive analogy, its role is very similar to those of the early "offshore intermediary accounts"—mainland investors who wanted to buy US stocks but couldn't find compliant channels had to use intermediaries. However, once cross-border transactions gradually became accessible and official compliant channels were established, this model naturally disappeared. The fate of stock tokenization is similar.

Crucially, tokenized stocks fail to address the core pain points of the capital market. Whether it's clearing efficiency, insufficient transparency, or inconsistent global regulatory standards, they offer no fundamental answers. They exist as a product of a niche, their justification stemming more from the misalignment between old institutions and new demands than from defining the future.

Future Vision: Exchanges on the Blockchain

Imagine a scenario ten years from now: the New York Stock Exchange, Nasdaq, the Hong Kong Stock Exchange, and even the Shanghai Stock Exchange (this one's a bit exciting!) will gradually migrate to a blockchain architecture. At that point, every stock, from the moment it's created, will be a token on the blockchain. Its registration, circulation, dividends, allotments, and voting will all be handled through smart contracts. Stocks will naturally be tokens, and the concept of tokenization will automatically dissolve.

What does this shift mean? In the past, stock issuance, registration, clearing, and settlement relied on multiple links: registration and settlement companies, custodian banks, clearing institutions, and exchanges. These layers of integration often took T+2 to complete. In an on-chain system, registration and settlement are simultaneous, and transactions are simultaneously cleared . Ownership and transaction records are updated in real time on the blockchain, significantly reducing intermediary costs. For investors, this represents not only an improvement in efficiency but also a revolution in the transparency and security of financial markets.

Once exchanges complete their blockchain transformation, the boundaries between securities firms and cryptocurrency exchanges will gradually disappear: you can buy Bitcoin directly from your securities firm account, and you can also seamlessly purchase Apple and Tesla stock on a cryptocurrency exchange. The underlying infrastructure of both will converge, completely breaking down the boundaries between traditional and emerging markets. Furthermore, the design of financial products will also change. For example, on-chain stocks can be combined with stablecoins and RWAs (real-world assets) to automatically generate structured wealth management products, even achieving instant settlement and on-chain staking.

To understand this evolution, consider the changes in music media over the past 30 years. People first used cassette tapes, then the Walkman, then the MP3, and finally the MP4. Each generation enjoyed its moment in popularity, but the ultimate winner was the smartphone—it integrated every feature, quickly rendering previous products obsolete. The current situation of stock tokenization is similar to the Walkman: seemingly trendy, but essentially a transitional form. The true disruptor will inevitably be the "smartphone moment" that redefines the entire ecosystem, namely, the blockchain transformation of exchanges.

To some extent, this change is also a competition in the global capital market.

The US's advantage lies in its mature stock market system and unparalleled liquidity. If it were to be the first to complete blockchain reform, it could extend the dollar's financial hegemony to the blockchain layer, directly upgrading "dollar settlement" to "dollar chain settlement." Imagine if all on-chain transactions and dividends for Apple and Tesla stock were settled in US dollar stablecoins. The dollar's dominance would not only be a currency, but also the underlying protocol of the entire global capital market.

Hong Kong's exploration can be seen as a pioneering experiment in integrating China's capital markets with blockchain. Leveraging its institutional advantage of "first-mover advantage," it has attracted a global influx of Web3 entrepreneurs and capital. Especially after the implementation of pilot programs for compliant exchanges and stablecoin legislation, Hong Kong is building a capital market model that blends East and West. If it can pioneer successful blockchain-based transformation, it could become a new entry point for international capital—not only connecting funds from Wall Street and Silicon Valley, but also providing a new channel for mainland Chinese investors and businesses to expand overseas.

Conclusion

The excitement surrounding tokenized stocks is essentially a transitional product, tacked into a regulatory loophole. It offers investors some short-term convenience and arbitrage opportunities, but it cannot truly change the very nature of stocks. The real revolution will come when exchanges move to blockchain.

This is an upgrade in both technological and institutional terms, and also a new strategic competition in the global capital market .