Tokenized stocks are revolutionizing finance by turning traditional shares into highly fungible, extensible, and interoperable digital tokens with utility across the DeFi ecosystem. This shift promises greater accessibility, faster transactions, and lower fees. With the tokenization market projected to hit $24 trillion by 2027, the future of equity investment seems poised for a major transformation.
As blockchain technology becomes more integrated into our financial systems, the concept of traditional stocks is evolving. Tokenized stocks offer fractional ownership, 24/7 trading, and quicker settlements. This makes the stock market more accessible to everyday investors and reduces barriers for companies looking to go public. The allure of decentralized, peer-to-peer exchanges is becoming increasingly appealing in a world where traditional stock markets are seen as slow, cumbersome, and in some cases even corrupt.
Do People Even Think About Stocks Anymore?
Tokenized stocks can be divided into smaller units, making it possible for individual investors to own fractions of a share. This lowers the entry barrier for investors with limited capital and democratizes access to high-value stocks.
Traditional stock markets also operate within specific trading hours, limiting the flexibility for investors. In contrast, tokenized stocks share the benefits of typical crypto which is traded around the clock, anywhere in the world. This round-the-clock trading enhances liquidity and gives investors the flexibility to respond to market events in real-time, something that pre-market and after-market trading has tried to alleviate but with little success.
Another big issue that traditional stocks face is that they take days to settle due to the involvement of multiple intermediaries and processes. Tokenized stocks enable nearly instantaneous settlements. This reduces counterparty risk and enhances the efficiency of the trading process. With the use of tokenized stocks also comes the benefits of automation provided by smart contracts, significantly lowering transaction fees. Traditional stock trading involves brokerage fees and other costs, while tokenized stock platforms can reduce these expenses by automating trade execution and the settlement processes.
So Where Does the Demand Come From?
Retail investors are increasingly seeking more accessible and flexible investment options. The ability to buy fractional shares, trade 24/7, and enjoy lower fees makes tokenized stocks highly attractive to this segment. Similarly, institutional investors are also recognizing the benefits of tokenized stocks. The efficiency, transparency, and enhanced liquidity provided by onchain assets can significantly improve portfolio management and investment strategies.
The biggest benefit, by far, will be for companies looking to issue equity. For them, tokenized stocks offer a more flexible and cost-effective way to raise capital. The tokenization process can bypass many of the administrative hurdles associated with traditional IPOs, making it easier for businesses to access funding.
Towards the Bigger Picture
The Texas Stock Exchange (TXSE), backed by BlackRock and Citadel Securities, is a notable development in this evolving landscape. With around $120 million in funding and plans to file with the SEC by the end of 2024, the TXSE aims to offer a competitive alternative to major U.S. exchanges, focusing on ETF listings and providing a pro-crypto environment. This new exchange could attract diverse crypto financial products, boosting market liquidity and broadening investment options.
Though there is no plan to offer tokenized assets on this exchange, many in the industry believe that the TXSE will be a stepping stone towards implementing many of the benefits that can come with tokenized stocks such as longer trading hours and enhanced liquidity.
The potential of a fully tokenized stock exchange is vast. It offers a glimpse into a future where traditional stocks are replaced by digital tokens, enabling a more efficient, inclusive, and flexible financial market. The TXSE’s focus on ETFs and the CME’s move towards spot crypto trading are steps towards this future, indicating a significant shift in how we think about and interact with stock markets.
What Next?
It’s become increasingly clear that tokens are a viable alternative to equity based capital raising for many companies. Countless multi-billion dollar companies with hundreds of employees have found their footing through capital raised onchain such as Uniswap and Chainlink, proving that the onchain ecosystem is a serious competitor to traditional exchanges. Not only are decentralized exchanges competing on the equity side, onchain exchanges have also become the arena of choice for day traders and penny trading has been consistently cannibalized by memecoins. If traditional equity funding, high risk speculation, and stable value exchange is done better onchain, how long do traditional stock exchanges have before they become a thing of the past?