“Synthetic assets like tokenized stocks help people in financially disenfranchised regions or politically dislocated areas join in the wealth creation of global markets by circumventing onerous regulatory barriers,” he said. “A user in Southeast Asia who cannot own Apple stock due to excessively high capital gains taxes on foreign equities, prohibitive capital controls, or a dearth of international brokerage avenues can tap into synthetic assets to gain price exposure.”
That ease of access has attracted plenty of interest.
“The two leading synthetic assets protocols are Synthetix and Mirror Protocol, which cumulatively account for about $4.5 billion in total locked value -- with the vast majority of that value confined to tokenized equities like major U.S. tech stocks,” said Kwon. “Both are growing at amazing rates.”
The crossover into traditional finance comes at a milestone moment for cryptocurrency exchanges.
Coinbase Global Inc. plans to go public Wednesday through a direct listing. Coinbase, which doesn’t offer stock tokens, was valued at about $90 billion in its final week of trading on Nasdaq’s private market, Bloomberg News reported. That valuation is, at least partially, based and limited by the size of the crypto market which currently stands at about $2 trillion. Any inroads made into global stock markets could expand crypto exchanges’ addressable markets by multiples of where it currently stands.
“It seems to me that this is a competition among new and old exchanges,” said Will Cong, an associate professor at Cornell University’s SC Johnson College of Business. “There is a general trend of digitization and upgrading database systems potentially using blockchains. Incumbent exchanges may not be threatened or incentivized enough to constantly innovate in this aspect. Crypto exchanges come in and compete away market shares through introducing products such as securitized stock tokens.”
Cong cautions that safety concerns will weigh on any attempts crypto exchanges try to make into traditional finance.
“Many crypto exchanges are still centralized,” said Cong. “If anything, they have more power than traditional exchanges that are under greater regulatory scrutiny. So unless more measures are put into place, it is hard to argue they are safer.”
Still, the push into stocks by crypto exchanges could prove to be the impetus for tokenization, a possibility raised by former Securities and Exchange Commissioner Jay Clayton during an October 2020 webinar.
“If you talk about trading today, all trading is electronic,” Clayton said.“That was not the case 20 years ago. It may very well be the case that just as you had stock certificates and now you have entries, digital entries for representing stock. It may very well be the case that those all become tokenized.”