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Analysis: 24/7 Trading of Tokenized Stocks on the Blockchain

TL;DR

Tokenized stocks trade around the clock on-chain but are subject to no central price peg outside of exchange hours. This leads to significant risks such as price decoupling, illiquidity, and counterparty risks. Investors do not hold direct equity rights, but derivatives based on the solvency of the issuer.

1. Structural Extension of Trading Hours

While traditional stock exchanges are bound by strict trading hours, blockchain networks operate continuously. This discrepancy is bridged by tokenized stocks: digital representations of securities such as Tesla or Microsoft that are tradable around the clock on networks like Ethereum.

Issuers like Backed Finance enable this through the securitization of underlying real assets (or corresponding derivatives) into ERC-20 tokens. What technically appears to be a logical evolution – the integration of traditional assets into a decentralized infrastructure – entails significant structural risks in practice. Trading outside of regulated core hours takes place without the price anchors and safety mechanisms of established trading venues.

2. Definition and Legal Classification

It is essential to understand that tokenized stocks generally do not represent stocks in the actual legal sense.

The holder is not entered in the share register and possesses no voting rights. Technically, these are mostly structured products or debt instruments that track the price of the underlying asset (tracker certificates).

Functionality:
An issuer holds the underlying securities at a custodian bank and issues corresponding tokens on the blockchain. The token holder thereby bears the counterparty risk of the issuer, as the value of the token depends on their ability to guarantee coverage.

Primary Characteristics:

  • 24/7 Tradability: Independence from stock exchange sessions.
  • Composability: Usage in smart contracts (e.g., as loan collateral in DeFi protocols).
  • Settlement: Instant settlement (T+0) on the blockchain.

3. Price Discovery in the Secondary Market

Tokenized stocks are primarily traded on decentralized exchanges (DEXs) like Uniswap. This fundamentally changes market mechanics.

While classic exchanges rely on central order books and market makers, on-chain trading occurs peer-to-peer or against liquidity pools. As long as the reference exchange (e.g., NASDAQ) is open, arbitrage ensures a tight price peg.

After market close, the price decouples:

  • The price is determined exclusively by supply and demand on the DEX.
  • News events (e.g., quarterly earnings) are anticipated in the token price without the existence of a reference price.
  • Oracles (digital price interfaces) can provide reference data, but often inadvertently reflect only the last closing price ("stale data") outside of trading hours.

This leads to a situation where the token price develops a life of its own, which is only corrected upon market opening.

4. Risk Analysis

Trading outside regulated structures requires a precise assessment of specific risks.

Price Decoupling (De-Pegging)

Without an active reference market, the anchor for price discovery is missing.

  • Scenario: A token closes at 260 USD. Negative news appears overnight. The token falls to 240 USD on the DEX. The NASDAQ opens the next day at 250 USD.
  • Consequence: Arbitrageurs exploit these inefficiencies, which can lead to losses for uninformed participants.

Liquidity Risk

Liquidity on decentralized trading venues is often low compared to primary markets ("thin markets").

  • Slippage: Large orders can move the price significantly.
  • Exit Risk: In stress phases, it can be difficult to liquidate positions without significant discounts.

Counterparty Risk (Issuer Risk)

Since the token represents a claim against the issuer, their creditworthiness is crucial.

  • In the event of insolvency of the issuer or the custodian, access to the underlying assets is legally complex and not guaranteed.
  • There is no direct claim against the public company (e.g., Tesla).

Regulatory Uncertainty

The classification of tokenized securities varies strongly globally. Regulatory interventions can abruptly restrict the tradability of tokens or force issuers to discontinue the service (geoblocking, KYC obligations).

Technical Risk

The infrastructure is based on smart contracts.

  • Programming errors (bugs) or exploits in the token bridge or oracles can lead to total loss.
  • The immutability of the blockchain means that erroneous transactions cannot be reversed.

5. Strategic Applications

Despite the risks, tokenized stocks are establishing themselves for specific institutional and advanced strategies.

  • On-Chain Treasury Management: DAOs and Web3 companies use tokenized RWAs to diversify crypto holdings into more stable asset classes without leaving the blockchain ecosystem.
  • DeFi Integration: Using stock tokens as collateral for loans, increasing capital efficiency.
  • Arbitrage: Professional traders use price differences between markets as a source of alpha.

6. Conclusion

Tokenized stocks redefine the interface between traditional financial markets and DeFi. They offer technological advantages such as instant settlement and global availability.

At the same time, they transfer risks to the investor that are cushioned in regulated markets by intermediaries and protective mechanisms. 24/7 trading therefore requires a deep understanding of technical and economic mechanisms. These are instruments for professionally acting market participants who can actively manage volatility and liquidity risks.

FAQ

Price deviations arise primarily from lower liquidity on decentralized trading venues and the lack of an active reference market outside of regular exchange hours. Since arbitrage mechanisms often work only to a limited extent at night, the price is determined purely by supply and demand in the crypto market.

As a holder, you generally do not hold direct equity, but a contractual claim against the issuer. In the event of insolvency, the enforceability of your claims depends on the legal structure of the product (e.g., SPV structure) and the jurisdiction. There is a significant counterparty risk.

Tax classification is complex and country-dependent. They can be classified as securities, derivatives, or crypto assets. This has implications for holding periods and the type of taxation. Professional tax advice is strongly recommended.

A stock split must be technically replicated by the issuer in the smart contract. If this is not done correctly or in a timely manner, discrepancies between the token and the underlying asset may occur. Investors rely here on the technical competence and reliability of the issuer.

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