Article written by: Prathik Desai
Article translation: Block unicorn
Preface
In the late 1980s, Nathan Most was working at the American Stock Exchange. But he wasn’t a banker or a trader. He was a physicist who had spent years in the logistics industry, moving metals and commodities. Financial instruments weren’t his starting point, practical systems were.
At the time, mutual funds were a popular way to get broad market exposure. They provided diversification for investors, but they also came with a delay. You couldn’t buy or sell at any time during the trading day. You placed an order and then waited until the market closed to find out the price at which it was filled (they still trade that way today, by the way). The experience felt antiquated, especially for those used to buying and selling individual stocks in real time.
Nathan proposed a workaround: Create a product that tracks the S&P 500 but trades like a single stock. Package the entire index into a new form and list it on an exchange. The proposal was met with skepticism. Mutual funds were not designed to be bought and sold like stocks. The legal framework didn’t exist, and the market didn’t seem to need it.
He pushed forward anyway.
Tokenized stocks
In 1993, the S&P Depositary Receipt (SPDR) debuted under the ticker symbol SPY. This was essentially the first exchange-traded fund (ETF). An instrument that represented hundreds of stocks. Initially seen as a niche product, it grew to become one of the most traded securities in the world. On many trading days, SPY traded more than the stocks it tracked. A synthetic structure achieved higher liquidity than its underlying assets.
Today, this story is important again, not because of the launch of yet another fund, but because of what is happening on the chain.
Robinhood, Backed Finance, Dinari, and investment platforms like Republic are beginning to offer tokenized shares — blockchain-based assets designed to mirror the prices of private companies like Tesla, Nvidia, and even OpenAI.
These tokens are promoted as a way to get exposure, not ownership. There is no shareholder status, no voting rights. You are not buying equity in the traditional sense. You are holding tokens that are tied to equity.
This distinction is important because it has sparked controversy.
OpenAI and even Elon Musk have expressed concerns about the tokenized stocks offered by Robinhood.
Robinhood CEO Tenev subsequently had to clarify that the tokens actually gave retail investors exposure to these private assets.
Unlike traditional shares issued by the company itself, these tokens are created by a third party. Some claim to hold real shares in escrow, providing 1:1 backing. Others are completely synthetic. The experience feels familiar: prices fluctuate like stocks, and the interface resembles a brokerage app, though the legal and financial substance behind them is often thinner.
Still, they attract a certain type of investor. In particular, those outside the United States who can’t invest directly in U.S. stocks. If you live in Lagos, Manila, or Mumbai and want to invest in Nvidia, you’ll typically need a foreign brokerage account, a high minimum balance, and a long settlement cycle.
The tokens traded on-chain track the movement of the underlying stock on exchanges. Tokenized stocks remove friction from the trading process. Think about it, no wires, no forms, no barriers. Just a wallet and a marketplace.
This access feels novel, even though its mechanics resemble something much older.
But there’s a practical problem here. Many of these platforms — Robinhood, Kraken, and Dinari — don’t operate in many emerging economies outside the U.S. It’s unclear, for example, whether an Indian user could legally or physically buy tokenized shares through these avenues.
If tokenized stocks are to truly expand access to global markets, the friction will not only be technological but also regulatory, geographic, and infrastructural.
How Derivatives Work
Futures contracts have long provided a way to trade without touching the underlying asset. Options let investors express a view on volatility, timing or direction, often without having to buy the stock itself. In each case, the options product becomes another way to invest in the underlying asset.
Tokenized stocks are emerging with similar intentions. They don’t claim to be better than the stock market. They simply offer an alternative avenue for investing, especially for those who have long been left out of public investing.
New derivatives often follow a recognizable trajectory.
At first, the market is in chaos. Investors don't know how to price, traders hesitate about the risk, and regulators stand back and watch. Then, speculators flock in. They test the bottom line, expand the product range, and exploit inefficiencies. Over time, if the product proves to work, it will be adopted by more mainstream players. Eventually, it becomes infrastructure.
This is how index futures, ETFs, and even Bitcoin derivatives on CME and Binance have evolved. They were not designed as tools for everyone. They started as a playground for speculation: faster, riskier, but more flexible.
Tokenized stocks may follow the same path. Initially used by retail traders chasing exposure to hard-to-reach assets like OpenAI or pre-IPO companies. Then adopted by arbitrageurs, taking advantage of the price difference between the token and its underlying stock. If trading volumes continue to grow and the infrastructure matures, institutional investors may also start using them, especially in jurisdictions where compliance frameworks emerge.
Early activity may seem noisy, with illiquidity, wide spreads and noticeable weekend price gaps. But that’s how derivatives markets often start. They are by no means perfect replicas. They are stress tests. It’s how the market discovers demand before the asset itself adjusts.
This structure has an interesting feature or flaw, depending on how you look at it.
Time difference.
Traditional stock markets have opening and closing hours. Even most derivatives based on stocks trade during market hours. But tokenized stocks don’t always follow these rhythms. If a US stock closes at $130 on Friday, and something big happens on Saturday — like an earnings leak or a geopolitical event — the token may start reacting to that, even though the stock itself is static.
This allows investors and traders to take into account news that comes while stock markets are closed.
The time difference will only become a problem if the trading volume of the tokenized stock is significantly greater than the stock itself.
Futures markets address this challenge with funding rates and margin adjustments. ETFs rely on authorized participants and arbitrage mechanisms to keep prices consistent. Tokenized stocks, at least so far, don’t have these systems. Prices can be volatile. Liquidity can be scarce. The link between a token and its reference asset still relies on trust in the issuer.
However, that level of trust varies. When Robinhood launched tokenized shares of OpenAI and SpaceX in the EU, both companies denied any involvement. There was no coordination and no formal relationship.
This is not to say that tokenized shares are inherently problematic. But it is worth asking, what are you buying in these cases? Exposure to a price, or a synthetic derivative with unclear rights and recourse?
The infrastructure behind these products also varies widely. Some are issued under European frameworks. Others rely on smart contracts and offshore custodians. A few platforms, like Dinari, are trying a more regulated approach. Most are still testing the boundaries of what’s legally possible.
In the United States, securities regulators have yet to make a clear statement. The SEC has made its position clear on token sales and digital assets, but tokenizing traditional stocks remains a gray area. Platforms remain cautious. For example, Robinhood chose to launch its product in the European Union instead of its home market.
Even so, the need is clear.
Republic has provided synthetic access to private companies like SpaceX. Backed Finance is packaging public equity and issuing it on Solana. These efforts are in their infancy, but they are ongoing, and the backing model behind them promises to solve friction rather than financing problems. Tokenized equity issuance may not improve the economics of ownership because that’s not what they’re trying to achieve. They just want to simplify the experience of participation. Maybe.
For retail investors, participation is often the most important thing.
In this sense, tokenized shares don’t compete with stocks, but with the effort required to acquire them. If investors can get directional exposure to Nvidia with just a few taps through an app that also holds their stablecoins, they may not care if the product is synthetic.
This preference is not new, though. SPY research shows that packaged products can become major markets. The same is true for contracts for difference (CFDs), futures, options and other derivatives, which started as tools for traders but eventually served a wider audience.
These derivatives often even lead the underlying assets. At the same time, they absorb market sentiment, reflecting fear or greed faster than the slower market below.
Tokenized stocks may follow a similar path.
The infrastructure is in its infancy. Liquidity is uneven. Regulation lacks clarity. But the underlying impetus is clear: to build a system that reflects the asset, is more accessible, and good enough for people to participate. If the representation can maintain its form, more volume will flow through it. Eventually, it will stop being a shadow and become a signal.
Nathan Most didn’t set out to redefine the stock market. He saw inefficiencies and sought a smoother interface. Today’s token issuers are doing the same thing. Only this time, the wrapper is a smart contract, not a fund structure.
It will be interesting to see whether these new packaging can hold their own when the market gets tough.
They are not stocks. They are not regulated products. They are instruments of proximity. And for many users, especially those far from traditional finance or in far-flung geographies, that proximity may be enough.
