Tokenization of Stocks: A New Type of Financial Derivation in the Era of Smart Contracts

In the late 1980s, physicist Nathan Mostow proposed an innovative idea while working at the American Stock Exchange: to create a product that could track the S&P 500 index but trade like a single stock. Despite facing skepticism at the time, he continued to push forward with this concept.

In 1993, the first exchange-traded fund ( ETF ) was born, listed under the code SPY. This product, initially regarded as niche, gradually grew to become one of the largest securities by trading volume globally. Today, this story is garnering attention once again, not because of the launch of new funds, but due to developments in the blockchain space.

Multiple platforms have begun offering tokenized stocks, which are assets based on blockchain technology and designed to reflect the stock prices of specific companies. They are positioned as a way to gain investment exposure rather than ownership, without the associated shareholder status and voting rights. This characteristic has sparked controversy, with some companies expressing concerns about it.

Unlike traditional stocks, these tokens are created by third parties. Some claim to hold actual stocks as backing, while others are entirely synthetic products. Despite having a relatively weak legal and financial foundation, they attract a specific type of investor, especially overseas investors who cannot directly invest in U.S. stocks.

Tokenization of stocks simplifies the trading process, eliminating cumbersome procedures and high barriers to entry. However, many platforms offering such services are unable to operate in certain emerging economies, limiting their potential to expand global market access.

Essentially, tokenized stocks are similar to traditional financial derivations. They provide investors with another avenue for participation, especially for groups that have long been excluded from public investments. These emerging products often go through a trajectory from chaos to mainstream, potentially becoming part of the infrastructure in the end.

A unique feature of tokenization of stocks is the time difference. Traditional stock markets have fixed opening and closing times, while tokenized stocks can be traded 24 hours a day, allowing investors to respond more quickly to market changes. However, this may also lead to price volatility and insufficient liquidity.

Currently, there are significant differences in the infrastructure behind tokenized stocks, and the regulatory stance is also unclear. Nevertheless, market demand is still evident. Some platforms have already begun to provide synthetic investment channels for private companies, while other platforms are issuing tokenized versions of publicly traded stocks on public chains.

For retail investors, participation is often the most critical aspect. The advantage of tokenization of stocks lies in simplifying the investment process, rather than changing the economics of ownership. They may evolve from traders' tools into products that serve a broader audience, just like other derivations.

Although the infrastructure is still in its early stages and the regulatory environment is not clear enough, the potential for tokenization of stocks is evident. They are designed to build a more accessible system that can reflect asset value. If this representation can persist, it may attract more trading volume and eventually evolve from shadow to market signal.

Today's token issuers are attempting to replace traditional fund structures with smart contracts to create a smoother investment interface. It is worth noting whether these new financial instruments can withstand the test during periods of market volatility. For many users, especially those far from the traditional financial system or in remote areas, this approach may already be sufficient. However, investors should recognize that these products are neither stocks nor fully regulated financial instruments, but rather a new form of investment approach.