Tokenized stocks have drawn investor attention, yet emerging issues raise questions about the reliability of such instruments.
Launch of Tokenized Stocks and Unforeseen Consequences
In late June, Robinhood, Kraken, Gemini, and Bybit announced tokenized versions of U.S. stocks and ETFs for users outside the U.S. Robinhood hosted an event in France inspired by a Hitchcock film. However, tokens created for companies like OpenAI and SpaceX faced backlash. OpenAI stated on social media: "We did not partner with Robinhood, were not involved in this, and do not endorse it." Lithuania’s central bank, which oversees Robinhood’s operations in Europe, sought clarification from the company.
Price Fluctuations in Tokens After Launch
On July 3, the AAPLX token, meant to reflect Apple stock, hit $236.72, a 12% premium over the actual share price. Two days later, the AMZNX token surged to $891.58—four times higher than Amazon's last closing price. On the peer-to-peer trading platform Jupiter, a single trader attempting to buy $500 worth of AMZNX caused its price to spike to $23,781.22—over 100 times Amazon's real value. All tokens were issued by Backed Finance, a Swiss company, and are marketed as "xStocks" with claims of being backed by real shares.
Lack of Oversight and Potential Risks
The U.S. stock market has strict regulations in place to verify identities and monitor trades. Tokenized stocks from Backed lack such scrutiny, opening the door for abuses. Gemini co-founder Cameron Winklevoss believes tokenizing equities can export U.S. capital markets worldwide. However, the absence of transparency raises risks for manipulation. Carlos Domingo, CEO of Securitize, stated: "It’s a can of worms and it is going to explode at some point, because people will find ways to do something illegal with these tokens."
The new technology of tokenized stocks may appear progressive; however, the risks tied to the lack of oversight and transparency cast doubt on their safety for investors.
