Two Paradigms of Stock Tokenization: xStocks Moves Towards Openness, Robinhood Enters the Walled Garden

Tokenization of real-world assets has become an important development direction in the blockchain field. With the involvement of fintech companies like Kraken and Robinhood, stock tokenization is gradually moving from concept to reality. Global investors can now participate in the trading of stocks from companies like Apple and Tesla in a more convenient way through blockchain technology. However, beneath the hype, we need to delve deeper into the intrinsic logic of this innovative model.

This report will focus on two typical stock tokenization models: the xStocks( representing the "Open DeFi" path issued by Backed Finance and traded on exchanges like Kraken), and the Robinhood representing the "compliance walled garden" path. Through comparative analysis of these two models, we will explore how to seek balance between strict regulation, technological innovation, and market opportunities.

I. Core Analysis: The Compliant "Tightening Spell" and "Amulet"

The primary challenge facing the tokenization of stocks is compliance. Currently, there are two main compliance paths in the market: 1:1 asset-backed security tokens and derivative contract tokens. These two models have fundamental differences in legal structure and operational logic.

Model One: xStocks - Embracing the Open Road of DeFi

The core of xStocks is to anchor each Token to real stocks on a 1:1 basis. The Tokens held by users directly represent ownership or rights to the underlying stocks. This model seeks authenticity and transparency of assets.

Legal Framework:

• Issued by the Swiss company Backed Finance, in accordance with the Swiss DLT Act.
• Establish a special purpose vehicle (SPV) in Liechtenstein to hold real stocks.
• SPV achieves risk isolation, protecting the safety of underlying assets.

Asset Support and Liquidity:

• Strict 1:1 peg, each Token corresponds to a share of real stock
• Achieve reserve proof through Chainlink oracles, increasing transparency
• Dual-track liquidity: centralized exchange market making + DeFi protocol liquidity pools

Model 2: Robinhood - Compliance-First "Walled Garden"

Robinhood's stock tokens are essentially a type of financial derivative contract, where users purchase the rights to contracts that track the price of specific stocks, rather than ownership of the stocks.

Legal framework:

• Issued by Robinhood Europe UAB, regulated by the Central Bank of Lithuania
• The product follows the EU MiFID II framework and is classified as a derivative.
• Quickly and cost-effectively deploy 213 types of stock Tokens on the Arbitrum chain.

"Walled Garden" Design:

• On-chain KYC and whitelist, only users who pass the review can trade.
• Limited DeFi composability, assets are locked within the Robinhood ecosystem.
• Plan to develop Robinhood Chain to further enhance ecosystem control.

Comparison of Two Major Models

xStocks represents "Asset on Chain", mapping traditional assets to the blockchain, embracing open finance. Robinhood represents "Business on Chain", utilizing blockchain to package traditional derivatives business, more like a blockchain upgrade of CeFi.

II. The "Game of Thrones" of Technical Architecture

Layer 1 blockchain selection

• xStocks chooses Solana: pursuing extreme performance, supporting high-frequency trading and DeFi interactions.
• Robinhood chooses Arbitrum: inherits Ethereum's security, will migrate to self-built Layer 2 in the future.

core technology components

Smart Contract:

• xStocks: Open-ended SPL Token, can be freely transferred
• Robinhood: Embedded transfer restrictions, only allowing addresses within the whitelist to hold.

Oracle ( Chainlink ):

• Provide price information, maintain anchoring
• Provide reserve proof for xStocks

Cross-chain interoperability ( Chainlink CCIP ):

• Achieve cross-chain asset transfer, expand liquidity

Asset on-chain and SPV operation

1. Asset Isolation: Purchase real stocks and deposit into SPV
2. Minting Token: Authorize on-chain minting after SPV confirmation
3. Token distribution: through exchanges or direct sales to qualified investors
4. Lifecycle Management: Handling corporate actions such as dividends and splits
5. Redemption and Destruction: Destroy tokens, SPV releases corresponding stocks

3. Business Model and Risk Assessment

business model

Robinhood:

• Foreign exchange conversion fee
• Potential introduction of order flow payment, membership services, etc.
• Expand the private equity market

xStocks:

• Transaction Fee
• Minting/Redeeming Fee
• B2B Asset Tokenization Services

Risk Assessment

• Regulatory Risk: Policy changes may affect business compliance.
• Technical Risks: Smart contract vulnerabilities, oracle failures, etc.
• Counterparty risk: Centralized platforms may go bankrupt or be hacked.
• Liquidity risk: Market fluctuations lead to the inability to close positions in a timely manner.
• Legal risks: Cross-border regulatory arbitrage may face challenges
• Market risk: Token price decoupling from underlying assets

Market Landscape and Future Outlook

main player matrix

1. Open DeFi camp: xStocks, Synthetix, etc.
2. Compliance Walled Garden: Robinhood, Securitize, etc.
3. Infrastructure providers: Chainlink, Backed Finance, etc.

Market Trends

• From Isolation to Integration: Deeply Combining with TradFi and DeFi
• Regulatory-driven innovation: MiCA, DLT legislation, etc. provide clear rules
• Institutional entry and product diversification: expansion into structured products, private equity, etc.
• Private equity tokenization has become a new blue ocean.

Future Thinking

• Open vs Closed Debate: Two Models Coexist, Serving Different User Groups
• The Race Between Technology and Law: Can technologies such as cross-chain, Layer 2, and privacy computing keep up with regulatory pace?

Stock tokenization is reshaping the global financial markets. Despite facing numerous challenges, the future direction it points to is irreversible. Market participants need to actively and prudently embrace this financial revolution based on a profound understanding of its underlying logic and risks.