Cryptocurrency exchanges begin offering tokenized securities | Hacker News Reader

Cryptocurrency exchanges begin offering tokenized securities

apnews.com

38 pointsdoodaddy64 comments

One thing to note for people who don't have a securities background is that exchanges have offered "depositary receipts" which is essentially the same thing for some time - the innovation here is making the depositary receipt into a crypto token. Depositary receipts are used typically to provide a secondary listing for a stock outside the country of its primary listing. So for example on Nasdaq I can trade a "Vodaphone depositary receipt", which will be denominated in USD but relate to 1 share of Vodaphone, which is listed in GBp in the UK. Somewhere in the pipeline a depositary institution has the actual shares and keeps track of who is the beneficial owner of each share for which a receipt has been issued.

This is an easy way for large companies to generate more liquidity (from foreign investors) and often has tax or other advantages for investors in that they don't need to report an FX pnl- they can just hold the stock in their main currency even though its primary listing is actually in a different currency.

These are usually called ADRs (American Depositary Receipts) and EDRs (European depositary receipts) based on whether the instrument is listed in the US or Europe. So the Vodaphone example above of a UK public company trading a depositary receipt on Nasdaq would be an ADR.

https://www.investopedia.com/terms/d/depositaryreceipt.asp

ADRs are largely a US thing, as far as I know. For example, many US companies list on European exchanges as a secondary listing using their US ISIN, not as an EDR.

Yes, although without getting too deep in the weeds, in the UK and Europe, asset-backed bonds are often issued using a similar process. The actual bonds are often held by a depositary and the holder just gets a depositary receipt rather than the bond itself. This is done largely for ease of settlement I believe.

The point is the mechanism here is reasonably well-established in normal finance.

Would tokenized shares remove the need for VIEs and contractual custodians in the Cayman islands for Chinese ADRs?

I don’t actually know but my guess is that this wouldn’t change the actual legal requirement but it may make it possible for people to buy the exposure while legally not being qualified to own the underlying security.

Approximately everybody in the US is able to get a brokerage account for trading public shares (with actual SIPC insurance, very limited liability for fraud etc). At the same time, the publicly investable stock market constitutes less and less to the total universe of US companies.

Unless tokenized securities will somehow make private investments accessible to non-accredited investors, this initiative seems to be entirely missing the elephant in the room, at least in the US.

The main value proposition is faster settlement.

The big institutions can measure their profits in terms of settlement time, going from 2 days to 1 day (previous infrastructure upgrades) to instantaneous (this) makes them more money.

I see how it can make sense on the settlement layer, but that's of absolutely no relevance to individual investors, which is who Robinhood are targeting.

In the EU, as far as I remember most modern brokers let you buy shares with unsettled proceeds of others without restrictions; in the US, getting a margin account takes no effort at all and bypasses the freeriding rules too.

Unfortunately, Robinhood makes money by selling individual investor orderbook data to the big guys so they can front-run them

Payment for order flow is not front running. The PFOF trader only gets right of first refusal on every trade; whether they take it or not, the broker is still obliged to execute the trade at NBBO or better.

It actually gets retail investors better prices than institutional or professional ones, since the counterparty can safely assume that there's "dumb money" on the other side of the trade.

That's not to say it's not controversial in some aspects, but it's not as simple a situation as you make it out to be.

Also, somewhat ironically, the front running risk on many decentralized exchanges is much higher due to MEV being a hard problem to solve trustlessly.

Can you explain how shorter settlement time is a benefit to retail clients who buy these tokenized stocks?

Or how you see big institutions making more money by reducing settlement time?

If you can shift these tokens around like Bitcoin my first thought was tax or sanctions evasion. Buy some VOO tokens from a 3rd party since you know your corrupt government (and you made money from that corruption) will seize your bank account for any reason. You hold these tokens in a private wallet stored somewhere for a few decades as your escape plan.

There was an article on how cut-throat (pun intended) low the margins are for money laundering in the competition between businesses to get drug trafficked US dollars from Mexico to China.

If you don't trust your own government, but the US government and financial institutions, couldn't you just open a US brokerage account?

And conversely, if the US government doesn't want you as a shareholder (and by extension US financial institutions can't serve you), good luck to anyone trying to (knowingly or negligently) redeem any VOO that you've touched.

Governments are more practiced at blocking money from moving around with traditional services like banks with crypto they have a tougher time locking down the avenues because anyone offering $LOCAL_CURRENCY to crypto is a place money can leak out of the country around traditional money controls.

There's a reason real estate is one of the more popular ways for chinese nationals to move large amounts of money abroad, it's one of the less restricted ways to move large sums of money out of the country. So there's a lot of interest in expensive real estate not for occupation but just to buy to get cash out of the country into a stable asset that can be sold or borrowed against.

Yes, it'll definitely take them some time to catch up, and currently the pendulum is swinging in the other direction, but as soon as a critical mass of retail investors get burned, I predict that they'll quickly figure it out.

I would have thought the massive proliferation of scam coin rug pulls would have done it but then the US elected a president who did his own crypto pump and dump rug pull right before his own inauguration so I doubt we'll see any real action against them for the next 3.5+ years.

"Advocates say tokenization is the next leap forward in crypto and can help break down walls that have advantaged the wealthy and make trading cheaper, more transparent and more accessible for everyday investors."

They LOVE playing this game. "We are doing this so you can now be the whale you always dreamed you would be!" But mean while they cut you to shreds with fees.

‘Advocates say tokenization is the next leap forward in crypto and can help break down walls that have advantaged the wealthy and make trading cheaper, more transparent and more accessible for everyday investors. But critics say tokenization threatens to undermine a century’s worth of securities law and investor protections that have made the U.S. financial system the envy of the world’. The problem with securities laws is that they are complex, and even defining what is a security is a hotly debated question, esp in crypto. I believe back in 2021, Binance had to pull back their offerings tokenized securities bc of german regulators, so its a very opaque environment.

Yeah.. as long as a judge can say that a security belongs to party X and not to the owner of tokens... tokenized securities are useless, they could just be a database record.

“They could just be a database record” is the response for pretty much all legal crypto uses.

It's almost like it was never designed at all to solve any of the actual problems with the finance system and just create a new one next to it with a different set of assholes at the top of it.

Saving in bitcoin to escape inflation works fine for me and is perfectly legal.

That sounds like a strategy that's going to work really well until it doesn't.

Perhaps I'm wrong. Good luck!

What do you think could make this "not work"?

Bitcoin not actually being inflation hedge, but an other correlated asset.

So "it doesn't work if it doesn't work". Thanks, but I already knew that.

Regulations prohibiting possession or trade, for example.

If you think this is very unlikely to happen, it's worth remembering that this has happened with gold in the past, in the US.

We've already seen what happens when there are legal hurdles, activities move to other countries, or people find legal loopholes. This has already happened a few times, and bitcoin is doing just fine.

Sure, but does that matter if you have to sell to the government, possibly at a rate lower than what you bought it for?

Doesn't matter to me as I'd just leave the country.

As with all assets, you risk its value dropping precipitously due to events outside of your control.

Specifically, I worry that decreasing supply and the corresponding upward pressure on prices will cause transaction fees to increase and therefore volume to decrease. Decreased volume might lower liquidity and allow an event like an old wallet coming online to trigger a price shock and maybe even a broader crisis of confidence in bitcoin's ability to serve as a store of value.

Normal stocks exist in a similar way for 99% of people. You don't own them directly you're the 'beneficial owner' and your ownership is just a database entry in your broker's database backed up contractually. It's the legal hack that lets you just press buy or sell and have it happen almost instantly instead of taking days to move around the paper stock certificates from one vault to another. Even if you go through the trouble of direct registration it's still basically a database entry.

I can go to FINRA and the SEC if someone does not deliver or properly custodian my security. Who do I go to when the blockchain doesn't? The value is not in the technical implementation, the value is in the trust and legal framework around ownership and counterparty transactions.

(paper stock certificates are no longer a thing except in rare circumstances, digitization took place long ago ["dematerialization"] at the clearinghouse)

> I can go to FINRA and the SEC if someone does not deliver or properly custodian my security. Who do I go to when the blockchain doesn't?

You can go to FINRA and the SEC.

Ahh, I was unaware FINRA and the SEC had the ability to reverse and override digital asset transactions on public cryptoasset networks. My apologies.

The article is not about blockchain tokens that are securities themselves, hence "tokenization".

From the article.

> The basic idea behind tokenization: Use blockchain technology that powers cryptocurrencies to create digital tokens as stand-ins for things like bonds, real estate or even fractional ownership of a piece of art and that can be traded like crypto by virtually anyone, anywhere at any time.

> However, the SEC has struck a cautionary tone when it comes to tokens. Shortly after Robinhood’s announcement, SEC Commissioner Hester Peirce, who has been an outspoken crypto supporter, issued a statement saying companies issuing tokenized stock should consider “their disclosure obligations” under federal law.

> “As powerful as blockchain technology is, it does not have magical abilities to transform the nature of the underlying asset,” Peirce said.

https://www.sec.gov/newsroom/speeches-statements/peirce-stat...

> The SEC’s 2025 rules say crypto tokens are likely securities if they act like investment contracts. This means tokens sold with promises of profits, driven by a central team’s efforts, will be categorized as securities. The SEC’s 2025 guidance outlines specific scenarios in which crypto tokens will likely be classified as securities. These typically involve projects that are still centrally controlled, promote profit expectations, or offer limited utility at the time of sale.

https://cointelegraph.com/explained/secs-2025-guidance-what-...

Schrödinger's tokens?

And show them my private keys proving... what exactly? That I own a derivative, possibly backed by a share, and they should please enforce my property rights in something they have no actual control over or even knowledge of?

These could be backed by the same SEC and FINRA requirements kind of have to see how the regulation plays out. I'm not super optimistic about it given their current attitudes towards crypto but this does more directly mix with the normal stock market so who knows where the rules will come down on this, they can regulate anyone claiming to offer tokenized securities to hold them purely 1-1 on the stock transfer agent of the companies for example, you don't have to regulate the 'blockchain' as an amorphous concept there will individuals/companies offering these tokens after all.

So NFTs for stocks?

With similar levels of actual ownership I take...

I assume customers will by buying into this stuff with stablecoins, which have the amusing property of being nonvolatile until the day their value plunges to zero over the course of a few minutes.

Have you looked at DEI / MakerDAO? They appear to be quite stable. But they are over collateralized as a stable coin should be.

Also the dollar backed ones would only fail if the foundations behind them fail (Eg. USDC)

The interesting thing here is that it was TradFi screwing things up for Crypto...

https://www.cnbc.com/2023/03/11/stablecoin-usdc-breaks-dolla...

It seems to be at 0.999 - which like prices in the counter party risk.

(Whether the risk is prices correctly can be discussed)

As always, actual price depends on the exchange you use.

You're probably looking at coinmarketcap, which sets the price based on the trade pairs.

It is always $1.00 on coinbase.

Well coin bases price is not a fair market price as they have ties to circle - they don't price in the counter party risk.

Any who, even USDC appears to be relatively robost, though with another risk landscape than dai.

Coinbase is the counter party. It isn't really "ties to circle", it is that both of them are the CENTRE Consortium.

The implied "problem" with USDC isn't depeg, it is this (and who controls it):

https://gist.github.com/chappjc/350aafb9031f7a66986967bf8ab6...

Practically, it hardly makes a difference as wallets are disposable.

Regardless, it depends on what risks we a looking at. Wait you raise is not really a credit risks - though I do understand why it concerns you.

Btw: https://www.theblock.co/post/349168/circle-paid-210-million-...

If you have funds in a wallet and it is blacklisted, then those funds are locked forever because they can see where the funds move and continue to lock any new wallets they move to. One could argue that's actually kind of a neat feature of a blockchain, in being so public.

Interesting, it goes a bit further than I had kept up with. CENTRE seems disbanded. But given this is all crypto, it is full of backroom deals... one can be sure that Circle and Coinbase are tightly coupled.

https://www.ledgerinsights.com/coinbase-and-ripple-vie-for-u...

Someone explain to me like I’m 5 how tokenization makes it possible to trade private companies. Wouldn’t that mean that the owners of those private companies are somehow issuing tokens related to their ownership?

Or is this yet another magical crypto thing where we collectively agree/imagine that tokens are somehow pegged to private companies, without any direct ownership to said companies?

Equity of private companies is bought from employees and investors (not real equity, often, but promise to give equity after exit), then tokenized

It's naked forwards, except with even less regulation.

Matt Levine has a good rundown here: https://www.bloomberg.com/opinion/newsletters/2025-06-26/any...

Thanks

Makes me wonder what happens if/when the next WeWork or Theranos rolls around, and people are invested via these types of trades.

Always amazed what scams and traps crypto community comes up with next.

All aboard the rage train !

When this whole thing crashes to the ground it will the digital equivalent of tulip bulbs of Netherlands.

How so? Tokenization is securitized, in this case with equities that have a huge and liquid market (the stock market).

What?

Why does we risk a crash more by using crypto exchanges over regular exchanges?

This is an incredibly lazy comment and reads like an involuntary spasm.

Tulip mania lasted 3 years: 1634-1637 in part of a single country.

Surely we should keep comparing it to a decades old globalized financial system with formalized state support from many nations and a market cap measurable in the trillions.

"Market cap" as applied to cryptocurrency is a completely fake metric that exists only because it produces viral big numbers. Cryptocurrencies don't have a market capitalization, because they don't represent fractional ownership of any asset; there's absolutely no reason to think that multiplying the most recent price of 1 ETH by the notional supply of 120 million produces a good estimate of the Ethereum network's aggregate value.

I thought the same, but... I don't think it will ever go down. Stock prices are already divested from the company fundamentals, but they can only get so high, so the next _logical_ step would be to create something entirely divested from the stock prices itself. Enter tokenized stock.

Not really. Some markets are. But when NASDAQ100 trade at PE = 30 I do think it is reasonably discounted cash flow under growth assumptions.

But you can trade EU, FTSE100, EM, etc. at a PE range of 15-20. While this is not historically cheap, it is also ont over-rated.

https://www.smithsonianmag.com/history/there-never-was-real-...

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