Original author: Castle Labs
Original translation by AididiaoJP, Foresight News
$69 trillion – this is the estimated market capitalization of the US stock market, which has driven the total market capitalization of the global stock market to $130 trillion.
Opportunities to participate in the stock market are increasingly coming into the view of native on-chain participants, even though they were initially uninterested. The reasons are varied, but the general consensus is that cryptocurrencies were once perceived as offering faster returns. However, a growing number of investors are beginning to diversify their investments. The Wall Street Journal highlighted this trend, noting that funds are shifting from Bitcoin to gold or the "MAG7" (Big Seven tech stocks).
Until recently, the narrative in the cryptocurrency space was one of unwavering loyalty to digital assets and acceptance of a cyclical pattern where everything mysteriously collapses every four years—almost astrologically-tinged. Most crypto assets, after reaching all-time highs in the second quarter of 2025, have yet to recover. Meanwhile, the stock market has repeatedly hit record highs, prompting investors to question whether loyalty to blockchain is merely a veneer of unwavering belief.
The real purpose of tokenization is not "financial inclusion" or "democratization of access," but to provide traders with a tool that allows them to short Tesla (TSLA), borrow Nvidia (NVDA) stock as collateral without KYC, trade pre-IPO stock, or earn returns in the Kamino vault.
This article analyzes three different paths to on-chain tokenization:
- In September, OndoFinance launched Global Markets, elevating tokenization on the Ethereum network to an institutional-grade standard.
- xStocksFi, owned by Backed Finance (now Kraken), launched in June, targeting the retail market with its multi-chain composability.
- HyperliquidX activated HIP-3 in October, enabling permissionless perpetual contract trading of any asset, including commodities and stocks.
This article will delve into the internal workings of each protocol, focusing on how they achieve the "tokenization" of assets on-chain.
We will provide a general analysis of the legal framework behind each agreement and its impact on investors.
Finally, we will explore where the broader tokenization trend is headed and what this means for the cryptocurrency ecosystem we are already familiar with.
Ondo: BlackRock on the blockchain
Founded in 2021 by Goldman Sachs-backed Nathan Allman and Justin Schmidt, Ondo has focused on building tokenized Treasury products (USDY for retail and OUSG for institutions) for many years. Prior to launching Global Markets in September 2025, it held over $2 billion in assets. Currently, the total value locked (TVL) of all Ondo products (including Treasury bills) reaches $2.47 billion.
Ondo's tokenization model falls under what the industry calls indirect tokenization. It works by having an offshore special purpose vehicle (SPV) purchase and hold underlying shares on behalf of token holders, then issuing on-chain structured notes. These notes transmit economic risk but do not grant legal ownership. Token holders have a claim against the Ondo issuing entity, secured by the underlying shares held in segregated accounts with a US-registered broker-dealer.
Ondo tokens are essentially debt instruments secured by stock, not the stock itself. For example, token holders do not have the voting rights that underlying stock holders do.
Its main features are as follows:
- It adopts institutional-grade tokenization standards, has a bankruptcy-remote SPV, provides daily proof of reserves, uses a US-registered custodian, and supports instant minting during market trading hours.
- If Apple stock trades at $180 on NASDAQ, users can instantly mint AAPLon with $180 of stablecoins and redeem it at any time. Arbitrageurs maintain a tight peg on-chain prices by balancing the price of tokenized shares between decentralized exchanges (DEXs) and Global Markets. The arbitrage cycle is key to maintaining price stability. Ondo achieves atomic settlement: stablecoins enter, tokens are generated instantly, all in one step. If AAPLon trades above $180 on the DEX, market makers mint new tokens on Global Markets and sell them on the market to smooth out the premium; conversely, if the price is below $180, they buy tokens on-chain and redeem them at face value to profit from the difference.
Ondo tokens are fully backed by U.S. stocks and ETFs held with one or more U.S.-registered broker-dealers. Holders do not directly own stocks but gain economic exposure through tokens, with dividends distributed automatically.
There are no fees for casting or redemption; Ondo profits from the price difference.
The platform initially launched over 100 assets on Ethereum, subsequently expanding to BNB Chain and Solana, and recently announced Ondo Chain. Ondo Chain introduces a specific Proof-of-Stake (PoS) mechanism for staking real-world assets (RWA).
The current product catalog covers a wide range of areas, including large-cap stocks (Apple AAPL, Tesla TSLA, Nvidia NVDA, Google GOOGL), exchange-traded funds (ETFs, such as SPY, QQQ) and commodities.
However, its geographical restrictions are extremely strict: U.S. citizens or residents are not allowed to participate. Ondo's tokenized shares are only available to accredited investors, and KYC is mandatory.
Each protocol's tokenization process has its own unique characteristics and is worth paying attention to.
Alpaca, a U.S.-based self-clearing broker-dealer, currently holds over 94% of tokenized U.S. stocks and ETFs by value, including Ondo's products. Alpaca's instant tokenization network provides a physical minting and redemption channel. This means the underlying shares are transferred directly between brokerage accounts, rather than being liquidated and repurchased, eliminating slippage and maintaining token price stability. Ondo recently filed a registration statement with the U.S. Securities and Exchange Commission (SEC); once effective, Global Markets will become the first issuer of transferable tokenized shares subject to SEC reporting requirements. The SEC concluded its two-year investigation in November 2025 without recommending charges against Ondo. Subsequently, Ondo acquired SEC-registered broker-dealer Oasis Pro Markets to accelerate its expansion in the U.S.
Ondo believes that institutions value regulatory clarity and operational efficiency more than ideological purity.
xStocks: A Powerful Tool for Retail Users
xStocks strikes an ideal balance between cryptocurrency and traditional finance: it is easier to access than Ondo, more compliant than HIP-3, and open to all users.
Launched in June 2025, xStocks offers over 60 tokenized stocks and ETFs. Each is backed 1:1 by securities held by a Swiss or US custodian under the supervision of Swiss regulators. Its tokens follow the SPL or ERC-20 standard and can be freely transferred between different blockchains.
Its timely success led Kraken to acquire Backed in 2025. Currently, xStocks holds publicly traded shares worth $250 million, with Tesla stock accounting for more than a quarter of that.
In this model, token holders do not own the stock itself, but rather have a claim against the issuer. Each xStock is backed by an underlying stock on a 1:1 basis. Dividends are automatically reinvested, similar to Ondo: when the underlying stock pays a dividend, the holder's wallet receives an airdrop of additional xStock tokens equal to the dividend amount.
Its tokenization mechanism compresses traditional structured finance models onto the blockchain. From a legal perspective, each xStock is a tracking credential, classified as a bearer debt instrument. It is issued by Backed Assets Limited, a Jersey-registered SPV and a wholly-owned subsidiary of Backed Finance AG in Switzerland. The token's financial value tracks a specific underlying stock or ETF, but does not grant ownership or voting rights. Token holders are creditors of the issuer, not shareholders of the underlying company. This is similar to the indirect tokenization model used by Ondo, but the specific legal structure and post-issuance operational mechanisms differ.
The issuance process is as follows:
- Authorized participants (APs) submit minting requests via Alpaca's API, specifying the stock ticker, quantity, target blockchain, and receiving wallet address.
- As a U.S.-based self-clearing broker-dealer, Alpaca verifies requests and transfers the corresponding shares from AP's brokerage account to the issuer's account.
- Once Backed confirms receipt of the underlying securities, it mints an equivalent amount of xStock tokens on-chain and sends them to AP's wallet.
The redemption process is the opposite: AP burns the tokens, and after Alpaca confirms the burning, the corresponding shares are transferred back to AP's brokerage account. This physical transfer mechanism keeps the token price closely linked to the underlying shares.
On March 5, xStocks launched xChange—an exchange engine designed to directly draw capital market liquidity into DeFi during trading hours, while retaining on-chain liquidity pools over the weekend for price discovery.
The system consists of three parts:
- On-chain liquidity supports price discovery outside of trading hours.
- xChange itself is responsible for connecting DeFi and traditional finance during trading hours.
- xPort is used to bring assets onto the blockchain.
xChange, powered by Chainlink oracles, is already available on Solana's aggregator and will soon launch on Ethereum's CoW Swap and 1inch. Integration with PancakeSwap, LiFi, DFlow, and Kamino Swap is also underway.
From a vertical perspective, off-exchange liquidity is drawn into the blockchain through arbitrage, thereby tightening the spreads of on-chain trading pools; from a horizontal perspective, it opens access to a large number of xStocks products without pre-injecting liquidity into each stock ticker.
Its regulatory framework covers three jurisdictions:
- The issuer is located in Jersey and is regulated by the Jersey Financial Services Commission under the Borrowing Control Order.
- The prospectus has been approved by the Liechtenstein Financial Market Authority (FMA), enabling the token to circulate freely in EU countries.
- The tokenization was carried out by Backed Finance AG in Switzerland.
The underlying collateral is held in segregated accounts at regulated custodian banks in Switzerland and the United States (including InCore Bank and Maerki Baumann), subject to a tripartite account control agreement. The guarantor has the right to freeze these collateral accounts should any token holders' interests be infringed.
With extensive distribution channels, shares are available on centralized exchanges such as Kraken, Bybit, and Gate. Kraken offers instant settlement, fractional share investment (minimum $1), and competitive rates (0.1% for takers, -0.02% rebate for order placers).
Unlike Ondo, xStocks' philosophy is to serve retail users wherever they are. There are no specific KYC or whitelist restrictions; anyone can buy stocks and freely transfer them between self-custodied wallets.
On February 25, xStocks' trading volume reached $25 billion.
Kraken has designated Alpaca as its preferred 1:1 source and custody partner for its underlying shares. Alpaca's instant tokenization network provides institutions with real-time minting and redemption services. In early February 2026, Deutsche Börse's 360X platform began offering xStocks to its clients! This exchange, regulated by the German Federal Financial Supervisory Authority (BaFin) and the European Securities and Markets Authority (ESMA), is considered the gold standard in Europe.
xStocks' core idea is that retail users value self-custody and multi-chain access capabilities more than institutional custody. Naturally, they crave the same tools as institutions. Stock tokenization is a first step in bridging the information asymmetry gap: now, anyone can make buy or sell decisions immediately after listening to an earnings call, before the market opens.
Hyperliquid: Everything is tradable
Hyperliquid, on the other hand, promotes a completely different model that simplifies the concept of tokenization to its most basic form: traders gain price risk exposure by long or short on derivative contracts, nothing more, without involving any economic ownership of the underlying asset.
HIP-3 was activated in October 2025, allowing any user who stakes 500,000 HYPE to launch their own perpetual contract exchange on HyperCore. Deployers can set up oracles, define leverage, manage risk, and earn 50% of the trading fees.
The operating mechanism here differs fundamentally from that described above. In the Ondo and xStocks models, real shares are held in escrow accounts, and tokens represent structured debt claims on these shares. When a holder burns tokens, the corresponding shares are sold. The asset custody chain is as follows:
Nasdaq → Brokers → Special Purpose Vehicle (SPV) → Blockchain
In Hyperliquid's model, the aforementioned chain completely disappears. The HIP-3 market is an independent isolated margin margin market, not directly listed on Hyperliquid's main interface, but rather entirely chosen and distributed by third-party builders. Oracles are a key variable: each deployer chooses its own source of price information and defines the processing rules when the US market is closed, but perpetual contracts still need to trade 24 hours a day. During market closures, exchanges rely on internal pricing processed by exponentially smoothed moving averages (EMA), protocol-defined price limits, and specific trust levels based on asset liquidity depth.
This is not a tokenized stock like Ondo Global Market. There are no stocks, no dividends, no redemption mechanism, and no SPV. There are only contracts that track prices through oracles and are settled in stablecoins or HYPE.
For example, the XYZ100, deployed by trade.xyz, tracks the value of an adjusted market capitalization-weighted index of the 100 largest non-financial companies listed on U.S. exchanges. Within two weeks, it reached $72 million in daily trading volume and $55 million in open interest, ranking among the top ten on the Hyperliquid platform; its monthly trading volume now reaches billions of dollars.
Hyperliquid's advantage lies in its decentralized marketplace creation mechanism. Any builder who meets the 500,000 HYPE staking requirement can deploy three marketplaces for free; additional marketplaces must be obtained through a Dutch auction.
This spurred the explosion of various niche markets:
- trade.xyz (offers XYZ100, NVDA, TSLA, AAPL, GOOGL, etc.)
- Ventuals (provides perpetual contracts with SpaceX during the pre-IPO phase)
- Felix (using USDH as collateral, with 20% lower fees for order takers)
- Kinetiq, a liquid staking protocol with monthly trading volume exceeding one billion US dollars.
With HIP-3, Hyperliquid is becoming the AWS (Amazon Web Services) of the perpetual contract space: instead of competing with each market segment, it provides the underlying infrastructure on which builders compete with each other.
Just as AWS rents computing, storage, and networking resources to users, allowing them to freely build applications on it, Hyperliquid implements the same model using financial infrastructure:
- HyperCore provides an order book, margin engine, and settlement layer.
- The deployer decides which assets to list, which oracle to use, what leverage to allow, and how to manage risk.
- The protocol itself doesn't care whether the market is tracking Tesla, pre-IPO SpaceX, gold, or a basket of GPU manufacturers. It takes a 50% cut of the fees regardless. This is fundamentally different from the business models of Ondo or xStocks, which must design the structure, arrange custody, and build the legal framework for each tokenized asset individually. Hyperliquid delegates these functions to the builders, taking a completely laissez-faire approach to tokenization.
The current market environment is extremely favorable for perpetual contract DEXs, with no signs of trading volume slowing down in 2026. Cryptocurrency speculators value leverage and accessibility more than ownership. However, as mentioned earlier, this is partly because the culture has not yet shifted, and accessibility was poor before the rise of tokenization in the past few years.
However, the risks are far greater than those of tokenized stocks. During periods of high volatility or market closures, oracle malfunctions, large-scale liquidations, or market makers withdrawing to avoid losses can all result in the complete loss of principal. Unlike tokenized stocks, once a position is liquidated, the funds are gone forever.
Institutional trading desks require auditable counterparties and clear regulatory requirements regarding derivatives classification, neither of which HIP-3 provides. For compliance-critical funds, trading equity perpetual contracts on Hyperliquid would immediately raise questions from auditors and risk committees, particularly regarding ISDA compliance. Hyperliquid's current user base remains predominantly retail, given its public accessibility. However, there are signs that this is changing. Ripple's integration of Hyperliquid into its institutional prime brokerage platform, Prime, to provide clients with perpetual contract access, is another example of this shift. The availability of gold, silver, and oil markets on Hyperliquid over the weekend following the Iranian attacks is increasingly making it a key benchmark for tokenized asset prices outside of trading hours.
Tokenize everything
Hyperliquid has proven that decentralized protocols can and will compete with traditional exchanges.
Other platforms are following suit. Binance relaunched its tokenized stock business on February 24, 2026, partnering with Ondo to list 10 tokenized US stocks and ETFs on Binance Alpha. This marks the first time Binance has reinstated this service since July 2021, when its compliance was questioned by the UK's FCA and Germany's BaFin, triggering a series of subsequent events.
The current exclusion of the US market is another point of contention. Once the SEC approves domestic tokenized securities (which is almost certain given the momentum following the passage of the GENIUS Act), the on-chain RWA sector will experience explosive growth. Regardless of the cryptocurrency market downturn, the value of stocks (whether publicly traded or private) generally trendes upward.
The real competition lies in who will control the infrastructure when the United States officially approves it.
Hyperliquid does not directly compete with xStocks and Ondo because they serve fundamentally different purposes. Ondo and xStocks offer economic exposure to stocks, with tokens backed by real-world stocks, automatically reinvesting dividends, and featuring redemption mechanisms pegged to underlying assets. Their core value lies in "access": holding, collateralizing, borrowing, and combining assets previously only available on traditional platforms like Schwab or Interactive Brokers. Hyperliquid's HIP-3, on the other hand, offers leverage and speculative tools: it's a price-tracking synthetic contract that doesn't claim any underlying asset, has no custodial chain, and doesn't grant any rights to creditors. In a sense, this might be the ultimate expression of financial freedom—anyone with a wallet and funds can instantly access virtually any asset.
For retail investors, this isn't an either-or choice, as each option leads to different outcomes. A trader might hold xTSLA in a self-custodied wallet as a medium-term position while short TSLA-USDC on Hyperliquid to hedge against potential poor earnings reports, much like many traders arbitrage between Polymarket, Pre-market, and OTC points platforms.
One is long-term portfolio allocation, the other is short-term trading. The confusion stems from the fact that both are accessed through cryptocurrency wallets, denominated in stablecoins, and broadly categorized under the concept of "tokenized stocks." However, this comparison is one-sided: xStocks and Ondo face issuer and custodian risks (the SPV must remain solvent, and collateral must remain segregated), while Hyperliquid faces oracle and liquidation risks (price information must be accurate, and margin must be sufficient, otherwise the position will be permanently lost). Therefore, despite falling into a broad category, these protocols are not directly comparable.
Hyperliquid's advantage over the previous two lies in its speed and flexibility. HIP-3's permissionless nature means that the market itself is the product—any asset with oracle price information can have a corresponding perpetual contract market within hours, without having to go through a legal structuring process that takes months, as is the case with tokenized stock issuance.
These are three protocols that are almost impossible to compare directly, each focusing on a very specific area and meeting the needs of different users: the competition between them is an illusion.
Ultimately, this is a discussion about choice, autonomy, and innovation.
