Tokenization of Stocks: Smart Contracts are Reshaping the Financial Market

In the late 1980s, a physicist named Nathan Mostow proposed an innovative idea while working at the American Stock Exchange. He envisioned creating a product that could track the S&P 500 index but trade like a single stock. This idea was initially met with skepticism, but ultimately came to fruition in 1993 in the form of the S&P Depositary Receipts (SPDR), becoming the first exchange-traded fund (ETF).

Nowadays, similar innovations are occurring in the blockchain field. Many companies are beginning to offer blockchain-based tokenized stocks, which are designed to reflect the stock prices of companies like Tesla and Nvidia. These tokens provide a way to gain exposure to stocks without ownership, lacking shareholder status or voting rights.

The emergence of tokenized stocks has sparked some controversy. Some companies are concerned about their stocks being tokenized. However, these tokens provide opportunities for overseas investors who find it difficult to invest directly in American stocks. They simplify the trading process, eliminating the need for complex foreign brokerage accounts and lengthy settlement periods.

However, the use of tokenized stocks still faces some practical barriers. Many platforms offering such services cannot operate in certain emerging economies, limiting their global accessibility.

The development trajectory of tokenized stocks may resemble that of other derivatives. Initially, it may be chaotic and speculative, but over time, if proven effective, it could be adopted by more mainstream participants. They may first be used by retail investors, followed by arbitrageurs, and finally by institutional investors.

A unique feature of this structure is the time difference. Traditional stock markets have fixed trading hours, but tokenized stocks can be traded around the clock. This allows investors to react to new information when the stock market is closed.

However, tokenized stocks also carry some risks and uncertainties. Liquidity may be insufficient, prices may fluctuate, and the connection to the underlying asset still relies on trust in the issuer. The infrastructure and regulatory frameworks of different platforms also vary.

Nevertheless, the demand for tokenization of stocks is evident. They may not change the economics of ownership, but they simplify the participation process. For many investors, this convenience may be enough to attract them to use these products.

The future development of tokenized stocks is worth paying attention to. They could evolve from niche products into mainstream financial instruments, much like ETFs. The key lies in whether these new forms of packaging can hold their ground during market volatility and how they respond to regulatory challenges. Although they are not stocks in the traditional sense, for many users, especially those distanced from traditional financial centers, this proximity may already be sufficient.