The good and bad of tokenized stocks

Tokenized stocks suffer from liquidity problems and off-hours price peg drift

article-image

VILTVART/Shutterstock and Adobe modified by Blockworks

share

This is a segment from the 0xResearch newsletter. To read full editions, subscribe.


You can finally trade traditional stocks on a blockchain!

That’s thanks to “xStocks”, the new tokenized stocks product brought to you by Kraken and Backed Finance (and soon Robinhood).

24/7 trading, instant settlement, tokens composable with decentralized finance, dividend payments flowing directly to your wallets and — best of all — a legal claim on the underlying stock.

Nice! Maybe my mom will finally understand the industry I work in.

But wait…there are nuances.

Anybody with a wallet can buy xStocks on Solana, yes.

But only qualified, KYC’d, non-US Kraken investors will be able to mint and redeem the underlying tokenized xStocks.

That’s because Backed issues each asset out of a Liechtenstein-domiciled SPV (special purpose vehicle). The SPV buys (or sells) the underlying shares on a regulated exchange during US market hours after a mint or burn request.

That takes us to the liquidity and price peg problems with tokenized stocks.

Stocks trade Monday to Friday, from 9:30 a.m. ET to 4 p.m. 

But tokenized stocks trade 24/7.

While Wall Street is open, a primary-market arbitrage keeps xStocks pegged to the cash price.

What happens to the peg when the trading day closes?

If Tesla finishes Friday at $300 and TSLAx changes hands at $290 on Sunday, price convergence only happens when someone is willing to burn tokens for shares after the market reopens.

But since market makers can’t hedge a Sunday fill until the bell rings on Monday, they’ll have to protect themselves by quoting wide spreads and small size, as Dragonfly Capital’s Rob Hadick pointed out in an excellent tweet.

This is somewhat echoed by Wintermute CEO Evgeny Gaevoy, who acknowledges that market makers “are generally not the biggest fans of providing liquidity on AMMs, let alone on weekends.”

This probably won’t matter so much for smaller trades. But the current lack of liquidity undermines the value proposition of tokenized equities.

You can play around on Jupiter to see for yourself how a six-figure trade would eat a high price impact of up to a triple-digit BPS.

The silver lining is that equities are far less volatile than crypto, so maybe some market makers would be willing to stomach that risk.

But until these issues get better, you can probably get much better execution and cheaper delta exposure with synthetic perps using Ostium, a perps DEX on Arbitrum that I’ve touched on previously.

Ostium’s co-founder, Kaledora Linn, notes that opening a $250k TSLA position through Ostium’s synthetic perps is roughly 100x cheaper than what you’d pay for a tokenized stock right now.

The only trade-off is that Ostium’s synthetic assets don’t enjoy the same capital efficiency of tokenized stocks (because they’re tokenized!). 

You can now put your tokenized stocks on a money market like Kamino and borrow stablecoins against them.

Loading Tweet..

It’s not clear if Robinhood will enable that composability, though. 

An early peek under the hood (thanks to Ren of Electric Capital) of Robinhood’s tokenized stock contracts reveals requirements of KYC/AML checks that limit transfers to approved addresses.

We’ll have to wait and see.


Get the news in your inbox. Explore Blockworks newsletters:

Tags

Upcoming Events

Old Billingsgate

Mon - Wed, October 13 - 15, 2025

Blockworks’ Digital Asset Summit (DAS) will feature conversations between the builders, allocators, and legislators who will shape the trajectory of the digital asset ecosystem in the US and abroad.

recent research

Research

article-image

Kathleen Osgood joins Moku to bring third-party brands to the studio’s AI game Grand Arena

article-image

Tokenized stocks suffer from liquidity problems and off-hours price peg drift

article-image

“Be your own bank” meets “be your own DJ”

article-image

Dragonfly’s Haseeb Qureshi and 6MV’s Mike Dudas discuss the recent “staid and rational” behavior of crypto markets

article-image

Crypto is a business — and it might be winner-takes-most

article-image

How a political refugee turned NFT trader is giving back to his alma mater