Tokenization of U.S. Stocks: A New Opportunity for Innovation in Encryption Assets

Recently, an executive from a well-known cryptocurrency exchange platform stated that they are considering tokenizing the company's stock to facilitate trading of US stocks on their self-developed blockchain. This initiative has sparked widespread discussion in the industry about the prospects of US stock tokenization.

In the current environment of relatively scarce innovation in the cryptocurrency market, the tokenization of US stocks undoubtedly injects a strong dose of vitality into the industry. If this plan progresses smoothly, US stocks are expected to become the third major type of physical asset tokenization project after stablecoins and government bonds. Considering the high volatility and speculative nature of US stocks, once the regulatory framework is clarified, the scale of tokenized US stock assets may surpass the current government bond tokenization projects in the short term.

The value proposition of US stocks on the blockchain is mainly reflected in two aspects: first, it expands the scale of the trading market, providing a round-the-clock, borderless, and permissionless trading venue for US stock trading; second, it has superior composability, allowing it to integrate with existing decentralized financial infrastructure to derive various innovative applications.

For U.S. listed companies, blockchain platforms can reach global potential investors and gain more buying support. For investors, blockchain technology provides new investment channels for those who were previously unable to trade U.S. stocks directly.

In fact, there have been attempts to put US stocks on the blockchain for a long time. A well-known cryptocurrency exchange platform tried to go public by issuing security tokens in 2020, but it was shelved due to regulatory obstacles. During the last wave of decentralized finance, synthetic asset products based on US stocks also emerged, but similarly faded away due to regulatory pressure. Even earlier, in 2017, some projects promoted the concept of Security Token Offerings (STO), which once gained market attention.

Today, US stocks going on-chain has once again become possible, mainly thanks to the shift in attitude of regulatory agencies from strong regulation opposition to supporting innovation within a compliance framework. In the foreseeable future, STOs may become one of the few narratives in this round of the cryptocurrency market cycle that have significant impact, clear business logic, and great potential.

In the secondary market, there are not many projects related to the STO concept. Among them, a project established in 2017 has attracted attention for being one of the first to educate the industry about the STO concept in the cryptocurrency space. This project later launched a public permissioned blockchain designed specifically for compliant assets, featuring identity verification, compliance checks, privacy protection, and other functions. In addition, some projects focused on the tokenization of physical assets are currently primarily concentrated in the government bond sector, but their products can also be adjusted to meet compliance requirements, serving the tokenization scenarios for stocks.

However, there are still many uncertainties about whether the STO narrative can truly gain momentum. Although the recent actions of regulatory agencies suggest a more lenient attitude towards STOs, it remains unknown when a clear compliance framework to guide STOs will be introduced. This will directly affect the speed at which major companies advance their related businesses.

It is worth noting that on the 21st of this month, a certain regulatory agency's encryption working group held its first roundtable meeting, focusing on the definition of securities and the design of compliance pathways. The meeting invited various representatives, including those from a well-known cryptocurrency exchange platform, to participate in discussions, which may indicate that a compliance framework related to STO is actively being formulated.

Overall, the tokenization of US stocks, as an emerging direction in encryption asset innovation, has a bright future, but its development speed and final outcomes still depend on changes in the regulatory environment. Market participants need to closely monitor the introduction of relevant policies to seize potential investment opportunities.