Crypto's Tokenized Stocks: Innovation or Investor Risk?

The rapid proliferation of tokenized stocks by cryptocurrency companies is raising concerns among financial industry experts about the potential risks to investors and market stability. These blockchain-based instruments, which track traditional equities, are gaining momentum amid a surge in global crypto enthusiasm fuelled by supportive policies from former President Donald Trump's administration.

While companies like Robinhood, Gemini, and Coinbase are pioneering these products, they frequently fall short in offering the same investor protections as traditional stocks. Industry critics warn that, unless properly regulated, tokenization could lead to fragmented liquidity and undermine market integrity. Some tokens, similar to derivatives, provide economic exposure rather than actual stock ownership.

Legal and financial stakeholders are divided on the application of regulations to stock tokens, with core investor protections seen as insufficient. Despite this, proponents argue that tokenization can enhance transactional efficiency, with global exchanges like Nasdaq expressing interest. The debate continues as regulators assess the implications for the broader market.

(With inputs from agencies.)