Two Models of Stock On-Chain: Open Ecology vs Closed Loop Compliance

Recently, stock tokenization has become a hot topic in the blockchain community, among which the xStocks supported by Backed and the model of a certain trading platform are the most eye-catching. The stock tokenization model adopted by xStocks has higher openness and composability, allowing ordinary users to trade freely on the chain. In contrast, the certain trading platform, while strictly adhering to Compliance requirements, only opens services to users of exchanges in the EU with clearer regulations, and does not allow the transfer of tokens to non-compliant addresses. This article will explore the characteristics of these two models in depth through multiple sets of data.

xStocks Model Analysis

Transaction Status

xStocks currently supports 61 stocks, of which 10 have generated trading volume on the chain. As of July 2, the cumulative trading volume of SPY, TSLA, CRCL, MSTR, and NVDA has exceeded $1 million. In addition, user trading has also occurred for AAPL, GOOGL, QQQ, META, and AMZN. Some emerging trading platforms have also launched xStocks trading partitions.

After receiving support from some well-known trading platforms, the trading volume of xStocks stock tokens has significantly increased. On July 1, the trading volume reached $6.641 million, with over 6,500 trading users and more than 17,800 transactions. Among them, the daily trading volumes of TSLA, SPY, and CRCL all surpassed $1 million.

Token Issuance Mechanism

xStocks adopts a model where 1 token is anchored to 1 share of stock. Professional investors or Compliance investors can apply for a Backed account to purchase stocks through Backed. Backed assists these primary investors in purchasing stocks at brokerage firms and holds the purchased stocks in a third-party institution. Then, Backed mints an equivalent number of tokens corresponding to the number of shares purchased through xStocks and returns them to the primary investors. Primary investors with a Backed account can issue and redeem stock tokens at any time.

Liquidity Provision

The issuance rights of stock tokens are concentrated in the hands of primary professional investors, but liquidity issues have become a focal point of concern. xStocks collaborates with exchanges not only to provide distribution channels for stock tokens but also to make exchanges an important part of primary issuance, leveraging the market-making resources of the exchanges to provide superior liquidity. Trading activity and the depth of liquidity pools complement each other; the more active the trading, the more participants there are providing liquidity.

Liquidity Incentive

xStocks is actively collaborating with DeFi protocols on Solana, such as the DEX aggregator Jupiter and the lending protocol Kamino. In the future, it may refer to the bStocks model, which is also backed, to cooperate with public chains and mainstream DEXs, utilizing third-party protocol tokens to incentivize and guide the liquidity of stock tokens.

Stock On-Chain Model of a Trading Platform

Token Deployment Status

The platform has chosen Arbitrum to issue stock tokens, with 213 types of tokens already deployed or currently undergoing stock token testing. The deployment cost is extremely low, averaging only $0.03 per token. This is also one of the important reasons the platform chose Arbitrum. In the future, the platform plans to develop a proprietary chain based on Arbitrum.

non-listed company stock token

The platform announced the launch of the world's first tokens for private company stocks, including OpenAI and SpaceX tokens. A total of 2,309 OpenAI(o) tokens have been minted. This initiative allows cryptocurrency users to potentially access and purchase upcoming IPO stocks earlier than traditional stock market investors.

Compliance requirements

The platform's stock token contracts embed strict compliance requirements. Each transfer requires checking the approved wallet registry (KYC/AML), and these tokens may not be able to interact with DeFi. Even EU users purchasing stocks on-chain cannot transfer stock tokens to other non-registered addresses, such transfers will be blocked.

upcoming token

In addition to OpenAI, the relevant addresses on the platform have set metadata for 79 deployed stock tokens, including the platform itself, Trump Media & Technology Group, GameStop, and ETFs such as Schwab US Dividend Equity ETF and Yieldmax MSTR Option Income Strategy. Some of the stock tokens that have had metadata set have undergone a small amount of minting.

Overall, these two stock on-chain models each have their own characteristics. The xStocks model focuses more on openness and composability, while the model of a certain trading platform places greater emphasis on Compliance and risk control. In the future, the development and evolution of these two models will be worth continued attention.