Two Practices of Stock on the Blockchain: Open Ecology and Compliance Closed Loop

Recently, the topic of stock tokenization has sparked widespread discussion, primarily focusing on the two models supported by Backed: xStocks and Robinhood. xStocks adopts a more open and composable approach, allowing ordinary users to trade stock tokens freely on-chain. In contrast, Robinhood takes a more cautious compliance route, only opening up to users in the European Union and limiting the transfer of tokens. Let's delve into the differences between these two models through some data.

xStocks: Open Ecological Model

xStocks currently supports 61 types of stock tokens, of which 10 have generated actual trading volume. The cumulative trading volume of SPY, TSLA, CRCL, MSTR, and NVDA has exceeded 1 million USD. After receiving support from certain trading platforms, xStocks' trading volume has shown explosive growth, with a single-day trading volume reaching 6.641 million USD on July 1, and over 6,500 users participated in the trading.

xStocks adopts a 1:1 anchoring ratio, meaning 1 token corresponds to 1 share of stock. Professional investors can apply to become issuers, purchasing actual stocks through Backed and minting corresponding amounts of tokens. Currently, the largest issued tokens are for NVIDIA, Circle, and Tesla stocks, each exceeding 10,000 tokens.

The liquidity of xStocks mainly relies on the market makers of the trading platform. The larger the trading volume, the stronger the willingness to provide liquidity. Currently, the on-chain USDC-based liquidity of the SPY token, which has the largest trading volume, has reached 1 million USD, exceeding the market value of the issued tokens. However, stock tokens with smaller trading volumes still face liquidity issues.

To increase retail participation, xStocks is collaborating with DeFi projects in the Solana ecosystem, such as the DEX aggregator Jupiter and the lending protocol Kamino, hoping to incentivize users to provide liquidity through third-party protocol tokens.

Robinhood: Compliance Closed Loop Model

Robinhood has chosen to issue stock tokens on Arbitrum, and currently has deployed 213 types of tokens, with an average deployment cost of only $0.03 per token. The low transaction fees are one of the key reasons why Robinhood chose Arbitrum. In the future, Robinhood plans to develop its own proprietary chain, Robinhood Chain, based on Arbitrum.

Robinhood EU has announced the launch of the world's first tokenized stocks for private companies, including OpenAI and SpaceX. This means that crypto users may have earlier access to high-potential private company stocks than traditional stock investors. Currently, Robinhood has minted 2,309 OpenAI tokens.

However, the stock token contracts of Robinhood 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 protocols. Even EU users purchasing stock tokens on-chain cannot transfer them to non-registered addresses.

Robinhood has set up metadata for 79 stock tokens, including stocks from companies such as Robinhood Markets, Trump Media & Technology Group, GameStop, as well as ETFs like Schwab US Dividend Equity ETF and Yieldmax MSTR Option Income Strategy. A small amount of some tokens has been minted and they will be officially launched soon.

Both models have their advantages and disadvantages. xStocks pursues openness and composability, while Robinhood places more emphasis on Compliance. The future direction of stock on-chain development may seek a balance between these two models, meeting user needs while complying with regulatory requirements.