On-chain US Stocks: An Emerging Narrative That Has Yet to Unfold

Recently, a senior executive from a well-known cryptocurrency exchange platform stated that they are considering tokenizing the company's stock to enable the possibility of trading US stocks on the blockchain. This move brings a breath of fresh air to the currently innovation-starved crypto market.

If this plan progresses smoothly, US stocks are expected to become the third major category of real-world assets (RWA) after stablecoins and government bonds. If the regulatory environment is friendly and provides enough development space for US stock tokens, their scale may surpass that of government bond tokens in the short term, as they align more closely with crypto users' preferences for high volatility and speculation.

Compared to other concepts that emerged in this round of the cryptocurrency cycle, the value proposition of on-chain U.S. stocks is clearer, and the demands from both supply and demand sides are more explicit. Its main advantages are reflected in:

1. Expand the trading market scale: provide a 24/7, borderless, permissionless trading venue, which traditional securities exchanges are currently unable to achieve.

2. Superior composability: can be combined with existing decentralized finance (DeFi) infrastructure, serving as collateral, margin, or for building indices and fund products, leading to various innovative applications.

For both supply and demand sides:

• Suppliers (U.S. listed companies) can access global investors through the blockchain platform, gaining more potential buyers.
• Demand-side (investors) can break through geographical restrictions and directly allocate and trade US stock assets.

In fact, the idea of bringing US stocks on-chain is not new. As early as 2020, a trading platform attempted to represent its stocks by issuing security tokens, but it was put on hold due to regulatory obstacles. During the last wave of DeFi, we also saw some attempts to create synthetic US stock assets, but they similarly faded away due to regulatory pressure.

As early as 2017, some projects promoted the concept of Security Token Offerings (STO), which allows companies to issue tokens representing securities rights through blockchain technology, giving investors rights similar to traditional financial instruments.

Nowadays, the concept of STO is gaining renewed attention, and the on-chain listing of US stocks has become feasible, mainly due to the shift in the attitude of regulatory agencies from strict regulation to supporting compliant innovation. In the foreseeable future, STO may become one of the few narratives with significant influence, clear business logic, and great potential in this round of the crypto cycle.

However, there are still many uncertainties about whether STO can truly gain momentum. Although recent actions by regulatory agencies indicate a relatively lenient attitude towards STO, when a clear compliance framework will be established remains unknown. This will directly affect the pace at which related companies can advance.

It is worth noting that on the 21st of this month, the regulatory agency held the first roundtable meeting of the cryptocurrency working group, with the theme "Defining Securities Status: Historical and Future Pathways". One of the guest speakers at the meeting comes from a trading platform that proposed the concept of tokenizing stocks, which may indicate that discussions regarding the regulatory framework related to STOs are underway.

If the relevant compliance framework is slow to be established, the current undercurrents of the STO narrative may lose momentum. Therefore, closely monitoring regulatory progress is crucial to grasping this emerging opportunity.