Narrative Background
Just the other day, Coinbase’s CEO Brian Armstrong and CFO Alesia Haas both stated that they were considering tokenizing Coinbase’s stock to enable trading of US stocks on the Base blockchain.
In a crypto cycle that has been boring in terms of innovation and dominated by POVs, we’re finally seeing the dawn of something interesting.
If the push goes well, U.S. stocks will become the third largest class of RWA assets after stablecoins (USDT, USDC) and Treasuries (Buidl), and if the regulatory and compliance framework is clear enough to provide enough freedom for tokens of U.S. stocks, U.S. stock tokenized assets should hopefully overtake the size of the current treasury-ized tokens in the near term, as they offer the high volatility and speculation that crypto users prefer.
Business logic
In contrast to the Crypto AI agent, desci (decentralized scientific research) and other narratives that have emerged in the current cycle, the value proposition of US stocks on the chain is clear, and the needs of both supply and demand are clear, specifically:
The value proposition of U.S. stocks on the chain is similar to other Defi products, reflected in a larger free market and superior composability:
- Expanded trading market: provide a 7 x 24 hour, borderless, license-free trading venue for U.S. stock trading, which is something that neither NASDAQ nor NYSE can do at present (although NASDAQ is already applying for 24-hour trading, it is expected that realization will take until the second half of FY26)
- Superior combinability: by combining with other existing Defi infrastructure, U.S. equity assets can be used as collateral, margin, build indices and fund products, deriving many currently unimaginable plays
The needs of both the supply and demand sides are also clear:
Supply side (U.S. stock listed companies): reaching potential investors from all over the world through the borderless blockchain platform, gaining more potential buy orders
Demand side (investors): many investors who were unable to trade U.S. stocks directly in the past for various reasons can directly allocate and speculate on U.S. stock assets through the blockchain
In fact, the idea of U.S. stocks on the chain has been attempted before, for example, Coinbase actually tried to go public by issuing security-based tokens (representing its stock $COIN) as early as 2020, but it was shelved due to regulatory hurdles from the U.S. SEC.
We also saw US stock synthetic assets in products such as Terra’s Mirror and Ether’s Synthetix during the last Defi boom, but subsequently faded due to the same SEC regulatory deterrent.
Earlier, Polymath, a securitization token issuance project created and financed in 2017, promoted the concept of STO (Security Token Offering), in which companies issue tokens representing interests in securities through blockchain technology, and investors obtain rights similar to those of traditional financial instruments such as stocks and bonds (e.g., dividends, voting rights), which at the time once also gained a lot of attention from the market at that time.
Nowadays, the main impetus for the STO concept to make a comeback again and for U.S. stock up-linking to become feasible comes from the substantial change in attitude of the SEC after the change of administration, from the strong regulatory confrontation in the past to the support of innovation within the compliance framework.
As far as the eye can see, STOs may be one of the few crypto business narratives in this cycle that has a high impact, business logic that makes sense, and a high ceiling.
Related Subjects
Starting from the context and logic of the narrative, we can sort out what are the relevant underlying crypto secondary markets.
In reality, there aren’t many rooted STO concepts that have already coined and gone live on the big houses.
The most relevant is probably Polymath, mentioned above, which was founded in ’17 and was the first to educate the crypto industry about the STO concept, and which later went live with the Polymesh blockchain, a publicly-licensed blockchain for compliant assets (such as security-based tokens) with built-in features such as authentication, compliance checking, privacy protection, governance, and instant settlement.
Polymesh’s tokens are already live on Coinsafe with tokens called Polyx, which currently have a modest market cap of 100 million+ in both MC and FDV.
In addition, while RWA concept projects such as Ondo have focused primarily on tokenized asset issuance in the treasury bond space in the past, their products can likewise be adapted to serve the tokenization scenario for equities in accordance with compliance regulations. Moreover, Ondo is close to the Trump family, and may be able to get more explicit or implicit facilitation, even to the extent of the Trump family members standing on the stage (although the marginal impact of similar actions has been getting weaker and weaker).
Chainlink has also previously done a lot of work connecting many traditional financial institutions to the blockchain, and as a mainstream provider of prophecy machine solutions and securities tokenization, could theoretically benefit from this as well.
Risks to be aware of
The title of this article describes the STO narrative as “hidden but not yet launched” because there is still a lot of uncertainty as to whether it will take off. While the new SEC team’s approach to STOs, as evidenced by the dropping of a large number of crypto lawsuits, also tends to be more relaxed, it remains unclear when a clear compliance framework will be put in place to guide STOs, which will need to be watched closely, and will determine how quickly companies such as Coinbase can follow suit and move forward.
The most recent event to watch was the SEC Crypto Task Force’s inaugural roundtable on the 21st of this month, which itself was designed to provide a clear regulatory framework. The theme of this inaugural session was “Defining the Status of a Security: History and Paths Ahead”, and one of the agenda items for the session was the design of a pathway to compliance.
More notably, one of the keynote speakers was Paul Grewal, the chief legal officer of Coinbase, the star of the STO narrative.
If the STO-related compliance framework is slow and the wait is too long, the momentum of the current dark narrative may be delayed or even annihilated.
