How Tokenized Stocks Change the Game for Investors

Summary

• Tokenized stocks are blockchain tokens that represent either legal ownership of real shares, or synthetic price exposure into the base asset (publicly traded company shares).
• Legally, they’re still securities: in the EU, “real share” equity tokens fall under MiFID II, while in the U.S. the SEC expects compliance with existing securities rules.
• The practical improvement of tokenized stocks is near-instant settlement, potential for round-the-clock trading, native fractionalization, and direct DeFi composability.
• The ecosystem is converging on three designs: fully backed custodial tokens (e.g., Backed xStocks, Ondo Global Markets, Securitize), synthetic equity tokens (e.g., Synthetix or Injective-style exposure), and native on-chain issuance where shares are issued directly on-chain.
• Falcon Finance illustrates how the programmability of tokenized stocks can make their building blocks for blockchain-native protocols: Falcon users deposit Backed’s xStocks as on-chain collateral to mint USDf and earn yield.

Introduction

Tokenization moves beyond merely a buzzword toward becoming a core component of financial infrastructure. Alongside U.S. Treasuries, bonds and commodities, equities are the next asset class rapidly migrating on-chain through various providers. This transition is more than a technical update to how shares are recorded: it represents a fundamental change in how stocks are issued, traded, and utilized as collateral. This article guides you through the changes tokenized stocks bring for investors and a broader finance industry.

What Are Tokenized Equities?

Tokenized equities (or tokenized stocks) are digital tokens on a blockchain that represent either legal ownership or economic exposure to traditional company shares. Instead of a position being recorded only in a broker’s internal database or a central securities depository (CSD), it is represented as a token in a wallet that can move and settle on-chain.

These assets generally fall into two categories:

• True Tokenization. A regulated entity holds the actual underlying shares and issues tokens, often via a special purpose vehicle (SPV), that legally represent those shares.
• Synthetic Designs. These tokens use oracles or derivatives to track a stock's price without granting legal ownership, functioning more like a contract for difference (CFD).

Analysts expect the tokenized securities market to grow to $35-40 billion by 2035 from around $1 billion to 1.2 billion in 2025, while some experts project even more optimistic forecasts. A broader range of tokenized real-world assets (including Treasuries, real estate and private credit) are already in the dozens of billions, with projections around $2 trillion by 2030, and stocks are increasingly part of that shift.

How Tokenized Stocks Differ from Traditional Stocks

At the legal level, tokenized shares are still securities. In particular, in the EU, equity tokens that represent real shares fall under MiFID II as financial instruments, not under the newer MiCA regime for crypto-assets. In the U.S., the SEC has made clear that tokenized securities must comply with existing securities laws, including disclosure and trading rules.

What changes is the underlying technical details and the possibilities:

Furthermore, the programmable nature of tokenized stocks allows compliance rules, such as geographic restrictions or KYC requirements, to be encoded directly into the token or protocol level.

Three Models of On-Chain Equities

The industry is currently experimenting with three primary architectural designs:

1. Fully backed custodial tokens. These are regulated wrappers where a licensed intermediary holds the shares and issues 1:1 backed tokens. Examples include Securitize, Backed Finance, and Ondo Global Markets, which maintain shareholder rights like dividends while enabling on-chain movement.
2. Synthetic equity tokens. These offer price exposure only, using protocols like Synthetix or Injective. While they lack governance rights, they offer maximum flexibility for use in decentralized lending and high-leverage trading.
3. Native on-chain issuance. In this model, companies skip traditional exchanges and issue shares directly on the blockchain. This is currently most common for private companies, funds, and SPVs, with limited pilots for public-market-style issuance under regulatory sandboxes.

Tokenized Stocks: Current Implementations and Use Cases

From a design perspective, tokenized stocks generally fall into three buckets along a spectrum of “TradFi-like” to “DeFi-native.”

1. Fully Backed Custodial Tokens (Regulated Wrappers)

In the most conservative and legally robust model, a licensed intermediary such as a broker-dealer, ATS, or transfer agent holds the underlying shares in custody, often through a special purpose vehicle. That intermediary then issues security tokens on a blockchain that legally represent ownership of those shares. Because these are treated as regulated securities, trading is usually restricted to KYC/AML-verified investors and takes place either on regulated crypto exchanges (CEXs) or on permissioned DEXs that enforce the same compliance rules.

Here are the leading projects issuing fully backed custodial tokenized stocks:

• Backed Finance (xStocks): issues ERC-20 tokens backed 1:1 by underlying ETF and stock holdings; a recent xBridge with Chainlink CCIP allows these tokens to move between Ethereum and Solana while preserving behavior and compliance rules.
• Ondo Global Markets: offers more than 100 U.S. stocks and ETFs as tokenized equities for non-U.S. investors, with 24/7 trading and near-instant settlement on-chain; assets are held with a regulated prime broker/custodian.
• Securitize: tokenizes public stocks and funds as regulated digital securities, with secondary trading via its own broker-dealer and ATS.

2. Synthetic Equity Tokens (Price Exposure Only)

On the other side of the spectrum are synthetic assets that mirror a stock’s price without holding the stock itself, with the following common features for virtually every project:

• The protocol uses oracles and derivatives to track a reference price of a stock (for example, TSLA or SPY).
• Token holders gain price exposure and sometimes funding/dividend adjustments, but no legal ownership of the underlying shares.
• Economically, this is closer to a CFD, total-return swap or perpetual future.

Early examples included Mirror Protocol and synthetic stock markets on protocols like Synthetix. More recent implementations appear on derivatives-focused chains such as Injective, where tokenized stock vaults and perpetual contracts provide stock-like exposure with high leverage and 24/7 trading.

The advantage is maximum composability with blockchain apps and DeFi protocols: these tokens can be freely used in AMMs, lending markets and structured products. The trade-off is that they are squarely in derivatives territory from a regulatory standpoint and do not unlock shareholder governance rights. One of the latest projects, BlockStreet, which closed a successful funding round in October 2025, offers advanced DeFi capabilities such as lending and borrowing of tokenized stocks, albeit serving as the infrastructure provider rather than the direct token issuer.

3. Native On-Chain Equity Issuance

Another, smaller but important category is native tokenized equity, when companies issue shares directly on-chain instead of tokenizing an already-public stock. Tokens serve as the primary share register, with corporate charters or shareholder agreements explicitly recognizing them as equity.

These structures are more common for private companies, funds and special purpose vehicles (SPVs), though pilots for public-market style listings are emerging via platforms like Securitize and specialized digital asset venues.

For investors, this model can streamline cap tables and secondary liquidity in private markets, and potentially make it easier to access previously illiquid exposures, e.g., growth-stage startups or private funds, with smaller purchases.

Case Study: How Falcon Finance Fits into the Stock Tokenization Trend

The recent partnership between Falcon Finance and Backed provides a practical blueprint for how tokenized stocks move beyond simple ownership and into the realm of CeDeFi. By integrating Backed’s xStocks, fully backed digital versions of popular stocks like Tesla (TSLAx) and NVIDIA (NVDAx), into Falcon’s collateral infrastructure, investors can now treat their equity holdings as productive assets.

While in TradFi, stock portfolios often sit idle unless used in complex margin lending. The Falcon Finance integration changes this dynamic by allowing investors to mint synthetic dollars (USDf) by depositing their tokenized stocks from xStocks as collateral to the app. After getting USDf, it is possible to stake USDf in Falcon and earn a share of the protocol's yield, derived from diversified strategies.

Risks and Regulatory Reality

Despite the technical advantages, tokenization does not eliminate traditional investment risks and introduces several new ones:

• Custody and counterparty risk: investors in backed models must trust the regulated entity to manage the underlying shares.
• Technical vulnerabilities: smart contract bugs or bridge failures can lead to the freezing or loss of assets.
• Regulatory advancements: as authorities like EU’s ESMA and the U.S. SEC refine their frameworks, the rules regarding who can trade these tokens and how they are taxed may shift.
• Legal exposure: investors in synthetic models have to recognize they have economic exposure but no formal standing on a company’s share register.

How Tokenized Equities Change the Game for Investors

Putting it together, why do tokenized equities matter in practice? Here are their major benefits:

1. Richer access and smaller tickets. The true game-changer is the move away from brokerage silos: when tokenized equities live in the same wallet as stablecoins, Treasuries, and other RWAs, they become part of a unified, programmable financial ecosystem. This allows for smaller entry through fractionalization, 24/7 liquidity, and the ability to use stock holdings as collateral in automated, transparent DeFi strategies.
2. 24/7, near-instant settlement. On-chain rails shorten settlement cycles and support weekend or overnight trading, which is particularly relevant when equities are used as collateral against crypto, or vice versa.
3. Integration with DeFi. Tokenized stocks can be lent out for yield, used to back stablecoins and other cryptocurrencies, combined into structured products or plugged into automated strategies, and all of this programmable behavior can be transparent and verifiable.
4. Operational efficiency. Using tokenized stocks, issuers and asset managers can streamline cap tables, automate corporate actions, and potentially reduce intermediaries and costs in issuance and secondary trading.
5. New portfolio designs. Professional investors gain the ability to treat stocks, Treasuries, credit and even private assets in a unified form of tokens, which opens doors to new portfolio overlays, cross-margin schemes and risk-managed leverage that are hard to replicate in traditional infrastructure.

Conclusion

Tokenized equities are traditional stocks upgraded with new technology. In fully backed designs, they retain the legal character of securities while inheriting the speed, global reach and composability of blockchains. In synthetic and native on-chain designs, they push further toward DeFi-native use cases at the cost of some traditional rights and with different regulatory implications.

For ordinary investors, it is less about speculation and more about access, flexibility and integration: fractional shares that can settle in seconds, trade 24/7, connect to DeFi and blockchain-native products, and coexist in the same wallet as stablecoins, crypto, and other RWAs. As regulatory clarity improves and major players like Backed bring more equities on-chain, tokenized stocks are poised to become a standard building block in both retail and institutional portfolios.