[Crypto Radar] Tokenized Stocks Push Deeper Into DeFi... On-Chain Expansion Picks Up Speed

Beyond Trading, Tokenized Stocks Are Now Used as Loan Collateral
Bybit, Mantle Move to Launch Tokenized Stocks
"Permitted Scope Must Be Clarified Through New Rules or Exemptions"

Tokenized stocks are being combined with various decentralized finance (DeFi) services. Their uses are expanding: existing stocks are being issued as tokens that can be traded on a blockchain, and the tokens are also being used to provide liquidity on decentralized exchanges and as collateral for loans. As tokenized financial assets are integrated with DeFi smart contracts, the links between traditional finance and the on-chain ecosystem are growing stronger.

According to financial industry sources on November 4, global cryptocurrency exchange Bybit is working with blockchain network Mantle to develop a tokenized stock product called "mStocks," which it aims to launch this month. The plan is to issue tokens backed by actual shares and make them tradable in liquidity pools based on Mantle's automated market maker (AMM). The companies are also pursuing features that would let users convert shares they hold into tokens and back into shares, and use tokenized stocks as margin in trading accounts.

On-chain circulation of tokenized stocks is already taking shape. Late last month, global real-world asset (RWA) tokenization company Ondo Finance began supporting 15 tokenized stocks and exchange-traded funds (ETFs) on the blockchain network of U.S. online investment platform Robinhood. Of these, 11 were connected to Uniswap's "StablePair" liquidity pools, allowing them to be exchanged for tokens issued by Robinhood that are backed by the same stocks. The pools were designed to charge higher initial fees on trades that correct price discrepancies and lower them over time, so that some of the profits earned by arbitrageurs go to liquidity providers (LPs).

A liquidity pool is a place where multiple users deposit tokens in advance. Other users can trade using the tokens in the pool. While traditional exchanges execute trades by matching buy and sell orders through an order book, Uniswap's AMM determines the exchange price based on the proportions of assets deposited in the pool. Traders exchange tokens through smart contracts without waiting for a counterparty's order, while LPs receive a share of the fees generated by trades.

Tokenized stocks are also being used as collateral for loans. For example, users can deposit tokenized stocks as collateral in a smart contract and borrow USDC or other assets. If the value of the stock tokens posted as collateral falls below a set threshold relative to the outstanding loan balance, liquidation may occur. Whereas traditional DeFi lending has mainly used Bitcoin or Ethereum as collateral, the range of eligible collateral is now expanding to include tokens backed by traditional financial assets.

Some observers say that as traditional finance and DeFi become more integrated, attention must be paid to the legal rights associated with tokenized assets and the various risks that may arise during on-chain transactions. Even when tokens are issued against the same stock, their legal status may differ depending on whether the actual shares are held for the investor or the investor has only a claim against the issuer. Decentralized exchanges also carry risks of slippage during trades and impermanent loss for LPs. In lending markets, risks may include oracle errors when external financial data is transmitted to the blockchain, as well as cascading liquidations following a sharp drop in collateral values.

Kim Hyunman, team leader of strategic consulting at Toss Insight, said, "Tokenization does not change the rights attached to the underlying assets or investor eligibility requirements." He added, "Even if a financial company outsources DeFi operations to an external protocol, it remains responsible for reviewing the regulations and operational obligations involved in offering products to customers." He also said, "For approaches that are difficult to address under the current system, the scope of what is permitted needs to be established through new rules or special exemptions."

This content was produced with the assistance of AI translation services.