Two Models of Stock On-Chain: Open Ecosystem and Closed Loop Compliance

Recently, stock on-chain has become a hot topic in the blockchain community, with xStocks and a certain trading platform's model being particularly noteworthy. In comparison, the stock on-chain model supported by xStocks has higher openness and composability, allowing ordinary users to trade freely on-chain. In contrast, the certain trading platform only provides services to users in the EU region where the regulatory environment is clear, while strictly adhering to compliance requirements and not allowing the transfer of tokens to non-compliant addresses. The following will explore these two models in depth through multiple sets of data.

xStocks Model

Transaction Status

xStocks currently supports 61 stocks, of which 10 have generated trading volume on-chain. Although it was launched not long ago, as of July 2, SPY, TSLA, CRCL, MSTR, and NVDA have accumulated over $1 million in trading volume. In addition, AAPL, GOOGL, QQQ, META, and AMZN have also seen user trading. Some emerging trading platforms have also launched xStocks trading zones.

After gaining support from certain trading platforms, the trading volume of xStocks stock tokens has significantly increased. On July 1st, the trading volume reached $6.641 million, with over 6,500 trading users and more than 17,800 transactions. On that day, the daily trading volume of TSLA, SPY, and CRCL all exceeded $1 million.

Operating Mechanism

xStocks adopts a model where 1 token equals 1 share of stock. Professional investors or compliance investors can apply to become primary investors and purchase stocks through the platform. The platform assists these primary investors in buying stocks through brokers and custodians the purchased stocks with a third-party institution. Then, the platform mints the corresponding number of tokens for the purchased stocks through xStocks and returns them to the primary investors. Primary investors with relevant accounts can issue and redeem stock tokens at any time. Currently, among the 10 existing traded xStocks stock tokens, NVDIA, Circle, and Tesla stock tokens have the highest total quantity, all exceeding 10,000 tokens.

Source of Liquidity

The issuance rights of stock tokens are concentrated in the hands of primary professional investors, but liquidity mainly relies on the market makers of exchanges. xStocks collaborates with exchanges not only to provide a distribution channel for stock tokens but also to make exchanges a part of the primary issuance, utilizing the market maker resources of exchanges to provide better liquidity. Trading activity and liquidity depth complement each other; the more active the trading, the more entities there are to provide liquidity. For example, the SP500 (SPY) with the highest trading volume has reached a USDC-based liquidity of 1 million dollars on-chain, surpassing the market value of the issued stock tokens. However, stock tokens with lower trading volumes still face liquidity insufficiency issues.

In order to guide and incentivize retail investors to provide liquidity for stock tokens, xStocks is collaborating with public chains and mainstream decentralized exchanges, considering the use of third-party DeFi protocol tokens for incentives. Currently, xStocks has partnered with several DeFi protocols in the Solana ecosystem, including decentralized exchange aggregators and lending protocols.

Certain Trading Platform Model

Deployment Status

A trading platform has chosen to issue its stock tokens on the Arbitrum network, having deployed 213 types of stock tokens or currently undergoing testing. The deployment of these tokens cost only $5.35, with an average cost of just $0.03 per token. The low transaction fees are one of the key factors for the platform's choice of Arbitrum. In the future, the platform plans to develop its proprietary blockchain based on Arbitrum.

non-public company stock token

The platform announced the launch of the world's first tokenized stocks of private companies, including tokens of a well-known AI company and a well-known aerospace company. This initiative aims to make cryptocurrency a pre-market for high-potential private company stocks, allowing cryptocurrency users to potentially access upcoming public offerings earlier than traditional stock market investors. Currently, the platform has minted 2,309 tokens of the well-known AI company.

Compliance requirements

The stock token contracts on this platform are embedded with strict compliance requirements. Each transfer requires checking the approved wallet registry (KYC/AML). These tokens may not interact with DeFi protocols, but centralized exchanges with distribution capabilities may benefit. Even EU users cannot transfer stock tokens to non-registered addresses when purchasing stocks on-chain; such transfers will be blocked.

is about to launch stock tokens

Apart from a certain well-known AI company, the platform's relevant addresses have set metadata for 79 deployed stock tokens, including the platform itself, a media technology group, a game retailer, and some ETFs. Some stock tokens that have set metadata have undergone a small amount of minting.

These two stock on-chain models each have their own characteristics: xStocks pursues openness and composability, while a certain trading platform strictly adheres to Compliance requirements. In the future, how these two models will develop, and whether new models will emerge, is worth our continued attention.