Written by: FinTax
"Stock tokenization" is rapidly emerging from the edge of the crypto circle to become the focus of global financial technology. A few days ago, the US SEC, under the leadership of its new chairman, launched "Project Crypto", in conjunction with the Trump administration's proactive policies and stablecoin strategy, aimed at facilitating global funds to flow more easily into US stocks and other high-quality assets, and consolidating the long-term leadership of the US capital market. Meanwhile, the concept of on-chain capital markets is spreading rapidly worldwide, attracting not only the native crypto community but also gradually gaining the attention of traditional financial institutions. Against this background, we have analyzed the multidimensional significance of stock tokenization for traditional finance and the crypto industry, exploring whether it can become a new narrative driving industry prosperity, and dissecting its compliance and uncertainty challenges.
1. What Significance Does Stock Tokenization Hold for Traditional Finance and the Crypto Industry?
1.1 Changes in Liquidity and Settlement Efficiency
Stock tokenization breaks the characteristic of delayed settlement in traditional financial markets. For a long time, whether in US stocks or other mainstream markets, most have adopted a delayed trading system, with "T+1" or "T+2" settlement cycles that not only affect market liquidity but also limit fund utilization efficiency. Stock tokenization promises to achieve "atomic settlement", where payment and delivery can be almost instantaneously completed, with asset and fund exchanges occurring simultaneously as an indivisible whole. This not only shortens the settlement cycle but also releases funds previously locked in the settlement process, significantly reducing counterparty risk. Combined with the automatic execution capabilities of on-chain smart contracts, trade matching and settlement can run virtually non-stop globally across any time zone. This efficiency upgrade is not only crucial for high-frequency trading and cross-border arbitrage but also extremely obvious in improving fund utilization for ordinary investors.
1.2 Reconstruction of Cross-Border Securities Investment System
Traditional cross-border securities investment is limited by complex custodian and agency banking networks and compliance review stages, with low efficiency and high costs. Stock tokenization, based on distributed ledgers and smart contracts, can embed KYC, AML, and geographical restrictions directly into the asset itself. On one hand, it reduces investors' dependence on multiple intermediaries, as in the on-chain capital market, everyone can create their own wallet and directly hold and trade assets; on the other hand, programming compliance logic into token smart contracts enables automated compliance checks, lowering the execution costs of cross-border investments. Although national legal and regulatory frameworks are difficult to fully align in the short term, technological changes have laid a solid foundation for reconstructing the cross-border securities investment system.
1.3 A Bridge Connecting Traditional Capital and the On-Chain World
In countries currently embracing stock tokenization, it is not just a technological innovation but positioned as an important component of national financial strategy. It can digitize high-quality traditional assets, enabling global funds to more conveniently enter the domestic capital market. For traditional capital, this model retains familiar investment targets and regulatory frameworks while gaining blockchain's advantages in settlement efficiency, liquidity, and global trading hours; for the crypto ecosystem, it introduces high-value, low-volatility quality assets as collateral and trading varieties, enriching on-chain asset structures and financial instruments, and bringing unprecedented incremental capital and new users to the crypto industry. Although building a comprehensive decentralized on-chain market will take time, the parallel landscape of traditional and on-chain capital markets will coexist and complement each other for a considerable period, with stock tokenization becoming one of the bridges connecting TradFi and DeFi.
2. Can Stock Tokenization Become a New Crypto Narrative?
From a community culture perspective, native crypto users prefer high-risk, high-volatility, ultra-high-yield speculative varieties - willing to heavily hold Bitcoin when it was only a few hundred dollars, or chase returns of several to dozens of times in MEME coins, DeFi, and other projects. In comparison, the stable returns of traditional assets like government bonds and gold have limited appeal, raising the question: Will this investment habit lead to poor liquidity for traditional assets on-chain?
In the short term, this cultural difference exists, but stock tokenization remains one of the few RWA categories that might break this barrier. The key lies in its "dual characteristics" - on one hand, it retains the value support and stability of underlying high-quality assets; on the other hand, once tokenized, these stocks can be combined with derivatives like leverage, futures, and options, creating sufficient volatility and strategic space to satisfy crypto users' speculative needs. Traditional assets still have the opportunity to bring significant investment returns, thus becoming attractive to crypto traders. Additionally, the changing user investment structure brought by crypto industry development is equally important. As some early crypto participants complete wealth accumulation, their risk appetite will naturally decrease, and they will actively seek asset diversification and stable returns. At this point, tokenized traditional assets may gradually enter their investment portfolios, with these users focusing not just on price fluctuations but on the "on-chain availability" and "instant tradability" of investment products.
More importantly, stock tokenization's target audience extends far beyond native crypto users to include a massive number of potential users and institutional investors. For institutions, tokenization can provide 7×24 liquidity and lower cross-border settlement costs while retaining traditional rights like dividend distribution and voting rights, which have potential appeal in private equity funds, family offices, and sovereign wealth funds. For ordinary investors, familiar investment targets and compliant frameworks can lower psychological barriers, making them more willing to allocate assets through on-chain channels. Therefore, stock tokenization is poised to become the "first step" for traditional capital entering the DeFi world. This is not just about expanding funding channels but about building infrastructure for bidirectional capital flow - allowing traditional capital to smoothly enter on-chain markets while providing convenient pathways for on-chain funds to enter high-quality real-world assets. Thus, stock tokenization's imaginative space extends far beyond internal crypto fund circulation to a comprehensive financial ecosystem value reconstruction.
3. What Compliance Risks Does Stock Tokenization Bring?
3.1 Unavoidable Risks
While stock tokenization and on-chain capital markets bring efficiency and liquidity improvements, they also introduce new systemic risks and compliance challenges. Here, we analyze some key aspects:
(1) Rule Gaps and Investor Protection: Currently, there are no clear, comprehensive regulatory and trading rules in this field, potentially turning the market into an uncontrolled "open playground" breeding unmanageable risk events. Allowing unrestricted investor entry might trigger market fluctuations that, while limited for AI or institutional investors, could be very unfriendly to retail investors. For governments, it's crucial to ensure risk management and compliance mechanisms evolve simultaneously with innovation, avoiding rule gaps that could become market vulnerabilities.
(2) Regulatory and Compliance Issues: The decentralized nature of on-chain markets makes tracking transaction sources and flows challenging, involving not just domestic users but participants from various global regions, increasing regulatory complexity. However, these risks are not unique to stock tokenization; many issues already exist in current crypto markets. For instance, money laundering and illegal trading have long occurred on-chain and won't significantly worsen due to stock tokenization. From a corporate perspective, traditional brokers and large financial institutions will continue to play a "gatekeeper" role for listed company stock tokenization, handling critical segments like KYC and tax reporting, thus buffering regulatory pressure to some extent. As for private company equity tokenization, its limited scale means minimal overall market impact.
(3) Tax Collection Issues: On one hand, decentralized on-chain transactions increase the difficulty of tracking trades, and due to the lack of a unified intermediary, it is challenging to collect transaction data and withhold taxes uniformly as in traditional markets through brokers. On the other hand, cross-border tax collection is complex, with investors distributed across different jurisdictions, involving multiple tax laws and information exchange mechanisms, resulting in high coordination costs, which poses higher requirements for tax authorities and industry participants. However, these challenges are similar to current cryptocurrency tax issues and are not unique to stock tokenization. In the short term, governments can continue existing strategies of tax management through centralized participants, while in the long term, a parallel market of traditional and on-chain systems may emerge, seeking balance between efficiency and controllable regulation.
3.2 Recommendations for Individual Investors
(1) Choose Compliant and Reputable Platforms: Although stock tokenization sounds like a new blockchain trend, investors still primarily face platform risks. Especially for novice investors or those with limited market understanding, priority should be given to platforms that have undergone strict regulatory review, have complete qualifications, and good reputation, to safeguard their funds and legal rights. For example, tokenized stocks issued in collaboration with traditional brokers, banks, or large financial institutions will have more comprehensive compliance processes, KYC/AML mechanisms, and customer fund segregation systems.
(2) Diversify Investments and Control Position Sizes: Crypto and traditional markets differ significantly in volatility, and stock tokenization sits at their intersection, meaning potential for double returns but also double risks. Therefore, investors should avoid blindly concentrating on a single asset or platform, and instead diversify across different asset classes and platforms to reduce investment risks.
(3) Invest in Familiar Assets: Tokenized stocks are essentially another representation of existing assets. In this new market environment, investors should prioritize companies, products, or industries they are familiar with, ensuring investment decisions are based on familiar industry logic and avoiding market sentiment influencing rational choices.
(4) Understand Product Structure and Rights: Tokenized stock underlying designs vary greatly. They could be real holding-type stocks (with underlying asset shareholder rights) or price contract-type stocks (only tracking price, without shareholder rights). Before investing, investors should clarify which structure they are buying and understand structural differences in dividend distribution, voting rights, liquidity, and exit mechanisms, assessing corresponding risks to avoid investment misjudgments.
(5) Comply with Tax Obligations: Tokenized stocks are not in a "tax gray area". Regardless of trading form changes, investors' tax obligations remain. Therefore, it is recommended to maintain transaction records, fund flow, and cost information throughout trading to ensure accurate capital gains or dividend income reporting. Additionally, pay attention to tax classifications of tokenized stocks in your jurisdiction, as different classifications have varying tax rates and reporting methods. Proactively fulfilling tax obligations not only mitigates legal risks but also maintains compliance qualifications for potential future regulatory tightening.
4. Conclusion
In summary, stock tokenization is at the intersection of technological transformation and institutional reconstruction. It is both an important part of global capital market digitization and a key link connecting TradFi and DeFi. In the short term, it may primarily manifest in optimizing liquidity, settlement efficiency, and trading hours, but in the long term, its true potential lies in reconstructing global asset issuance, circulation, and management, forming a wealth ecosystem of mutual circulation on-chain with real-world economics.
However, opportunities and challenges have always coexisted. Issues like rule gaps and investor protection determine that this market's maturation will inevitably involve institutional friction and regulatory negotiations. For industry participants, seizing policy windows and actively promoting technology and compliance integration will be key to gaining an advantage. For investors, rationally choosing platforms, diversifying allocation, and complying with tax obligations are survival rules in this emerging market.
It can be anticipated that as on-chain infrastructure improves and traditional finance deeply integrates with crypto ecosystems, stock tokenization may become the common language of the next stage of crypto industry and global capital markets, generating new investment logic and wealth opportunities. In this process, participants who can balance innovative vitality with steady compliance will occupy important positions in the future financial landscape.
