What are ‘tokenized’ stocks, and why are trading platforms like Robinhood offering them?

Robinhood cofounder and CEO Vlad Tenev channeled Hollywood glamour last month in Cannes at an extravagantly produced event unveiling of the trading platform’s newest products, including a tokenized shares offering designed to give investors exposure to private companies like SpaceX and OpenAI, as well as public companies like Microsoft and Nvidia. For crypto enthusiasts, it was a watershed moment: A major trading platform was finally breaking down the barriers between traditional equities and blockchain technologies. 

“The time is now for crypto to move beyond Bitcoin and memecoins and introduce fundamental utility,” Tenev told Bloomberg Television. “We think, in the future, crypto and traditional financial services will fully merge, and crypto will become the infrastructure layer behind all kinds of financial services.” 

But Tenev’s moment of triumph was short-lived. First, OpenAI cautioned Robinhood customers to “be careful,” noting on X that tokenized shares are “not OpenAI equity.” Then, this week, the Securities and Exchange Commission’s cryptocurrency task force leader released a statement saying that “tokenized securities are still securities.” While the statement did not represent an official shift in Securities and Exchange Commission (SEC) policy, it did serve as a signal that U.S. regulators are monitoring tokenization with a critical eye. (For now, Robinhood’s tokenized shares are only available in Europe.) 

Despite the controversy, at least half a dozen companies are racing to develop tokenized versions of traditional equities. Here’s what you need to know: 

What are tokenized shares? 

Tokenized shares are digital versions of stocks or other securities that mimic the valuation of the real-world version. They give buyers exposure to the traditional equities without giving them governance rights.

How do they work? 

Tokenized shares can work one of two ways: In the first case, the trading platform acquires shares in a company, and then issues tokens for those shares. There is a one-to-one relationship between the underlying shares held by the trading platform and the tokens that the platform issues. 

In the second case, the trading platform issues tokens without acquiring any underlying shares, while promising to tie the value of its token to the real-world security’s value. The onus here is on the trading platform to be able to cover any gains through its own investment and hedging strategies. 

Robinhood has said it will own the shares backing its tokens and will provide token holders with benefits including dividends.

Which trading platforms are offering tokenized shares? 

Many of the leading crypto trading platforms, including Coinbase and Kraken, are in the process of developing tokenized shares. Coinbase is still in talks with the SEC, while Kraken launched its xStocks product, which includes over 50 U.S. equities, in select non-U.S. markets in May. Kraken backs its xStocks one-to-one with traditional equities.  

Republic, an investment platform known for its private market and crowdfunding solutions, is calling its tokenized shares “mirror tokens” and is currently operating a waitlist for unicorns including SpaceX, Anthropic, and Ramp. It’s capping investor participation at $5,000, and does not plan to acquire shares. 

“You’re not buying a SPV [special purpose vehicle] interest in SpaceX,” says Mario Lattuga, Republic’s head of legal. “What you’re doing is, you want to participate in that prospective upside. And it’s as much of a bet on Republic as it is on that ‘underlying’ company.”

Jarsy, founded by former Facebook and Uber executive Han Qin, is one of several younger startups focused on tokenized shares. Jarsy closed its $5 million seed round last month. 

What is the argument in favor of tokenization? 

Proponents of tokenization view it as a way to increase access to private markets and modernize public markets. 

In the U.S., only accredited investors are allowed to invest in private companies—and even for accredited investors, it’s extraordinarily difficult to buy shares of a unicorn like SpaceX. Younger generations of investors, in particular, see the opportunity to get in early on future unicorns as important to their financial success. 

In parallel, proponents of public company tokenization view the model as a way to increase markets’ speed, efficiency, accessibility, and cost. Robinhood is aiming to demonstrate those benefits by making its tokenized shares tradable 24 hours a day, five days a week. Over time, Robinhood aims to eliminate even blockchain middlemen and run token trading on its own infrastructure.  

What are the risks associated with tokenization? 

For companies, token markets have the potential to undermine control. A private company raising a fundraising round, for example, might struggle to convince investors of its target strike price if the company’s tokens are trading at a lower price. 

For retail investors, there are a multitude of risks, which can vary depending on the specific terms being offered by the trading platform. Some platforms are imposing liquidity constraints, for example. Plus, there has been no official rulemaking around the products, making it unclear what recourse will be available to investors in the event of a trading platform’s collapse or other potential problems. 

What are regulators saying about tokenized shares? 

The S.E.C.’s crypto task force held a hearing on tokenization in May. Hester Pierce, the task force’s leader and an S.E.C. commissioner, indicated in her recent statements that tokenized shares should be treated as securities, or tradable financial instruments, which would make them subject to government oversight. She also noted that the S.E.C. was also willing to collaborate with trading platforms. “We stand ready to work with market participants to craft appropriate exemptions and modernize rules,” she said. For now, though, the products are in the same kind of regulatory limbo that has plagued some aspects of crypto for years.

Is this the first time that platforms have tried to make a go of it with tokenized equities? 

No. In 2021, crypto exchange Binance launched tokenized U.S. stocks, including for Apple and Tesla. But Binance scrubbed the effort just months later, after regulators balked. 

Why has OpenAI been the most vocal in its resistance to tokenization? 

OpenAI’s famously complex corporate structure may play a role in its cautionary tone. Startup Jarsy, for example, does not plan to list OpenAI tokens. Jarsy could have tried to acquire OpenAI preferred shares through an existing investor, but decided to pass because of the risks associated with tying tokens to a company with a murky governance structure. “OpenAI is a nonprofit company; the shares they’re offering are not exactly shares,” says Qin. 

Why are so many companies launching tokenized shares now? 

The Trump administration is seen as crypto-friendly. If Trump’s SEC allows tokenized shares to move forward, it could be difficult for a future administration to walk the decision back. 

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