Original article by Prathik Desai
Original translation: Saoirse, Foresight News
In the late 1980s, Nathan Most worked at the American Stock Exchange. But he was neither a banker nor a trader. Instead, he was a physicist with a long career in logistics, including working in the transportation of metals and commodities. His focus was not on financial instruments, but on practical systems.
At that time, mutual funds were the mainstream way for investors to gain broad market exposure. Although such products provided opportunities for diversified investment, they had trading delays: investors could not buy and sell at any time during the trading day, and had to wait for the market to close before knowing the transaction price after placing an order (it is worth noting that this trading model is still used today). For investors who are accustomed to buying and selling individual stocks in real time, this lagging trading experience is outdated.
To this end, Nathan Most proposed a solution: develop a product that tracks the SP 500 index but can be traded like a single stock. Specifically, the entire index is structured and packaged and listed on the exchange in a new form. This idea was initially questioned. The design logic of mutual funds is different from stock trading, the relevant legal framework is still blank, and the market does not seem to have such a demand.
But he still insisted on pushing forward the plan.
When the Standard Poor’s Depositary Receipt (SPDR) debuted in 1993 under the ticker symbol SPY, it was essentially the first exchange-traded fund (ETF): an investment vehicle that represented hundreds of stocks. Initially seen as a niche product, it has since become one of the most actively traded securities in the world. On most trading days, SPY’s volume has even exceeded that of the stocks it tracks. The liquidity of this synthetic product has surpassed that of its underlying assets.
Today, this history is once again instructive, not because of the emergence of new funds, but because of the changes taking place on the blockchain.
Investment platforms like Robinhood, Backed Finance, Dinari and Republic are launching tokenized stocks, blockchain-based assets that aim to mirror the share prices of private companies like Tesla, Nvidia and even OpenAI.
These tokens are positioned as risk exposure tools rather than ownership certificates, and holders are neither shareholders nor have voting rights. This is not buying equity in the traditional sense, but holding a token that is linked to the stock price. This distinction is crucial and has caused controversy. OpenAI and Elon Musk have expressed concerns about the tokenized stocks provided by Robinhood.
Robinhood CEO Tenev later had to clarify that these tokens are actually a channel for retail investors to access these private assets.
Unlike traditional stocks issued by companies, these tokens are created by third parties. Some platforms claim to provide 1:1 backing by hosting real stocks, while others are completely synthetic assets. Although the trading experience is familiar, with price movements consistent with stocks and interfaces similar to broker applications, the legal and financial substance behind it is often weaker.
Even so, they still attract a certain type of investor, especially non-U.S. investors who don’t have direct access to U.S. stocks. If you live in Lagos, Manila, or Mumbai, investing in Nvidia usually requires opening an offshore brokerage account, meeting high minimum deposit requirements, and going through lengthy settlement cycles. Tokenized stocks, as tokens that trade on-chain and track the underlying stock on exchanges, eliminate those barriers to trading. No wires, no forms to fill out, no restrictions on entry, just a wallet and a marketplace.
This investment channel may seem novel, but its operating mechanism has something in common with traditional financial instruments. However, practical problems still exist: most platforms such as Robinhood, Kraken and Dinari do not operate in emerging markets outside of the US stock market. For example, it is still unclear whether Indian users can legally or actually purchase tokenized stocks through these channels. If tokenized stocks want to truly expand global market participation, the resistance they face will not only be technical, but also multiple challenges such as regulation, region and infrastructure.
Derivatives Operation Logic
Futures contracts have long provided a way to trade based on expectations without directly holding the underlying asset; options allow investors to bet on the size, timing or direction of a stock’s movement without actually buying it. In either case, these tools have become an “alternative channel” for investing in the underlying assets.
The birth of tokenized stocks follows a similar logic. They do not claim to replace the traditional stock market, but provide another way for people who have long been excluded from public investing to participate.
The development of new derivatives often follows a pattern: the market is full of confusion in the early stage, investors are unsure about how to price, traders are deterred by risks, and regulators are on the sidelines; then speculators enter the market, test the boundaries of products, and take advantage of market inefficiencies to arbitrage; if the product proves to be practical, it will gradually be accepted by mainstream participants and eventually become market infrastructure. This is the case with index futures, ETFs, and even CME (Chicago Mercantile Exchange) and Binances Bitcoin derivatives. They were not originally intended for ordinary investors, but more like a playground for speculators: although transactions are faster and riskier, they are also more flexible.
Tokenized stocks may follow the same path: first, retail investors use it to speculate on hard-to-buy assets such as OpenAI, or unlisted companies; then arbitrageurs find that the price difference between tokens and stocks can make money, and follow suit; if trading volume can be stabilized and infrastructure can keep up, institutional sectors may also join in, especially in jurisdictions with a sound compliance framework.
The early market may look chaotic: insufficient liquidity, large bid-ask spreads, and sudden price jumps on weekends. But derivatives markets are always like this at the beginning. They are never perfect replicas, but more like stress tests - letting the market see if there is demand before the asset itself adjusts.
There is an interesting aspect of this model, which can be called an advantage or a disadvantage, depending on how you think about it - the time difference issue.
Traditional stock markets have opening and closing times, and most stock derivatives also trade according to the stock market time, but tokenized stocks do not follow this rule. For example, a US stock closed at $130 on Friday, and suddenly a big news broke on Saturday (such as early financial report leaks or geopolitical events). At this time, the stock is not open, but the token may have started to rise or fall. In this way, investors can take the impact of news when the stock market is closed into the transaction.
The time difference will only become a problem when the trading volume of tokenized stocks significantly exceeds that of traditional stocks. The futures market responds to such problems through funding rates and margin adjustments, and ETFs rely on designated market makers and arbitrage mechanisms to stabilize prices, but tokenized stocks have not yet established these mechanisms, so prices may deviate, liquidity may be insufficient, and whether they can keep up with stock prices depends entirely on the reliability of the issuer.
But such trust is shaky. For example, when Robinhood launched tokenized shares of OpenAI and SpaceX in the EU, both companies denied involvement, claiming they had neither collaboration nor formal relationship with the business.
This is not to say that there is something wrong with tokenized stocks themselves, but you have to think clearly: Are you buying price exposure at this time, or a synthetic derivative with unclear rights and recourse?
For those of you who are anxious about this, listen, it’s really no big deal.
OpenAI issued this statement just to be safe, after all, they had to do it.
Robinhood, on the other hand, simply launched a token to track OpenAI’s valuation in the private markets, just like the tokens of the other 200+ companies on their platform.
You’re not actually buying shares in these companies, but the shares themselves are just certificates; it’s the digital form of these assets that’s key.
In the future, there will be thousands of decentralized exchanges that will allow you to trade OpenAI, whether it is private or public. By then, liquidity will be abundant, the bid-ask spread will be significantly narrowed, and people all over the world will be able to trade.
And Robinhood just took this step first~
The underlying architecture of these products is also varied. Some are issued under the European regulatory framework, while others rely on smart contracts and offshore custodians. A few platforms, such as Dinari, are trying a more compliant operating model, while most platforms are still testing the boundaries of the law.
The US securities regulator has not yet made its position clear. Although the US SEC has expressed its position on token issuance and digital assets, the tokenization of traditional stocks is still in a gray area. Platforms are very cautious about this. For example, Robinhood launched its products in the European Union first and did not dare to launch them in the United States.
But the need is already clear.
The Republic platform provides synthetic investment channels for private companies such as SpaceX, and Backed Finance packages public stocks and issues them on the Solana chain. These attempts are still in their early stages, but they have never stopped. The model behind them promises to solve the problem of participation barriers rather than the logic of finance itself. Tokenized stocks may not increase the returns on holding shares because it is not intended to do so at all. Perhaps it just wants to make it easier for ordinary people to participate.
For retail investors, being able to participate is often the most important thing. From this perspective, tokenized stocks are not competing with traditional stocks, but competing on the convenience of participation. If investors can get exposure to the rise and fall of Nvidia stocks with a few clicks on an application that holds stablecoins, they may not care whether it is a synthetic product.
This preference has precedent. The SPY exchange-traded fund has proven that packaged products can become mainstream trading markets, as have other derivatives such as contracts for difference (CFDs), futures, options, etc. They started out as tools for traders but eventually served a wider user base.
These derivatives often even move ahead of the underlying assets, and during market fluctuations, they capture emotions faster than slow-reacting traditional markets, amplifying fear or greed.
Tokenized stocks may follow a similar path.
The current infrastructure is still in its early stages, liquidity is sometimes good and sometimes bad, and the regulatory framework is vague. But the underlying logic is clear: make something that reflects asset prices, is easy to buy, and that ordinary people are willing to use. If this alternative can be stabilized, more trading volume will flow into it. In the end, it will no longer be a shadow of the underlying asset, but will become a market vane.
Nathan Most did not intend to reshape the stock market at first, he just saw the efficiency loopholes and wanted to find a smoother way to interact. Todays token issuers are doing the same thing, except that they have replaced the fund packaging of the year with smart contracts.
It is worth observing whether these new tools can maintain trust when the market crashes. After all, they are not real stocks and are not regulated. They are just tools to approach stocks. But for many people who are far away from traditional finance or live in remote areas, being able to approach them is enough.
