Demand for trading stocks on-chain is gaining significant traction, highlighted by Switzerland-based Backed Finance’s innovative product, xStocks. Since its launch on prominent platforms such as Bybit, Kraken, and various decentralized finance (DeFi) services on Solana, xStocks has attracted more than $300 million in trading volume within just a few weeks. These tokens, which represent shares in publicly traded U.S. companies, are fully backed 1:1 by the respective stocks held by a licensed custodian, providing transparency and security for investors eager to engage with traditional assets in a digital format.
As xStocks continues to gain momentum, the company notes that the impressive volume could simply be the beginning, with expectations that it may double in the near future. This surge in demand aligns with a broader movement towards integrating traditional markets with DeFi, a trend underscored by recent offerings from established platforms like Robinhood and Gemini, which have begun providing European users access to tokenized U.S. stocks.
“xStocks have crossed $300m in Total Transaction Volume Onchain, a testament to the demand for tokenized equities,” xStocks stated, emphasizing the real interest in these on-chain trading solutions.
However, not all industry experts share the enthusiasm for tokenized equity products. Anton Golub, COO at crypto exchange FreedX, voiced skepticism, asserting that tokenized equities merely serve as a representation rather than actual ownership of the stocks. He pointed out that while investors may buy tokens that track companies like Tesla, they do not receive voting rights or direct ownership of the shares, akin to contracts for differences (CFDs) popular in Europe. Golub argues that, rather than democratizing access to stocks, tokenization may simply reformulate existing trading structures.
Additionally, concerns about market liquidity have been raised, particularly regarding potential limitations over weekends when trading tends to slow down. Parsec Finance has highlighted the challenges of liquidity, stating that new products often encounter difficulties in sustaining stable prices when executing large buy and sell orders. The notion that tokenized stocks might encounter “liquidity cold start problems” suggests that further analysis will be necessary as this pioneering market continues to evolve.
Demand for On-Chain Trading of Tokenized U.S. Equities
Key points regarding the rise and implications of trading tokenized U.S. equities through platforms like Backed Finance:
- Significant Trading Volume:
xStocks has achieved over $300 million in cumulative trading volume shortly after its launch, indicating a strong demand for tokenized equities.
- 24/7 Availability:
Tokens are traded around the clock, giving investors continuous access to the market, unlike traditional stock trading hours.
- Transparency and Security:
Each token is backed 1:1 by actual shares stored with a licensed custodian, which enhances trust and reduces the risk of fraud.
- Regulatory Compliance:
Backed Finance operates under Switzerland’s DLT regulatory framework, which may provide an additional layer of legitimacy and protection for investors.
- Integration with DeFi:
xStocks utilize Solana’s token standard for compatibility with Web3 and DeFi applications, fostering innovation in trading methods.
- Broader Trend:
This growth aligns with the larger trend of merging traditional markets with decentralized finance, as evidenced by similar offerings from companies like Robinhood and Gemini.
- Skepticism and Concerns:
Some experts express doubt about tokenized equities, citing that they function more like wrappers around the actual equities without providing real ownership rights, voting rights, or direct asset custody.
- Liquidity Issues:
Concerns exist regarding liquidity, particularly during weekends, which could hinder the execution of larger trades at stable prices.
The Rise of Tokenized Equities: Backed Finance’s xStocks vs. Traditional Trading Models
The launch of Backed Finance’s tokenized U.S. equities, under the name xStocks, has sparked significant interest in the investment landscape. The product has quickly achieved over $300 million in cumulative trading volume across major platforms like Bybit and Kraken, showcasing a strong demand for crypto-based trading solutions. This advancement is reflective of a broader trend toward integrating traditional finance with decentralized finance (DeFi), appealing particularly to tech-savvy investors looking for enhanced trading options.
Competitive Advantages: The xStocks platform benefits from 24/7 trading capabilities, backed by a licensed custodian which guarantees a 1:1 backing with actual equities, providing a layer of security and transparency. Furthermore, its infrastructure, built on the Solana blockchain, promotes high-speed transactions, making it attractive to those seeking efficient trading mechanisms. The appeal extends to international investors who now have easier access to U.S. equities, which could dramatically broaden the investor base and increase market participation.
Competitive Disadvantages: Despite its innovations, the tokenized equity model has drawn skepticism from industry insiders. Critics like Anton Golub emphasize that these products are not equivalent to direct stock ownership, as they lack associated rights, such as voting privileges and actual custody of the stocks. This raises questions about the true benefits for retail investors compared to traditional investment vehicles, such as Contracts for Difference (CFDs), which have been established in the European market for years. Concerns about liquidity—especially during weekends when trading volume could be low—also pose a challenge to the xStocks’ market efficacy, potentially deterring traders who prefer more stable environments.
The rise of tokenized equities could benefit a diverse range of investors, including those in underserved markets eager for exposure to U.S. stocks without geographical barriers. However, the emphasis on tokenization might confuse or alienate conservative investors who prioritize traditional ownership structures and are wary of the complexities involved in trading through these new mechanisms.
Overall, the ongoing discourse surrounding xStocks invites both optimism for innovation in trading and caution about the lingering intricacies of tokenization, suggesting a complex future as traditional and decentralized finance continue their convergence.
