Introduction to On-Chain Equity Trading
The push to move stock markets on-chain is gaining momentum, with the promise of 24/7 trading and near-instant settlement attracting attention worldwide. However, beneath the surface of this modernization lies a complex web of regulatory, liquidity, and governance challenges. As the industry hurtles towards this new frontier, it’s essential to consider the potential risks and consequences of on-chain equity trading.
The Promise of Speed and Efficiency
On-chain stocks can settle trades almost instantly, shortening the cumbersome cycles associated with traditional trading and freeing up capital for better use. The appeal is easy to see, with cross-border investors gaining easier access, fractional ownership, fewer legal hurdles, and the main advantage over non-tokenized options: speed. Analysts at the World Economic Forum have highlighted the benefits of on-chain stock trading, including predictable settlement, reduced voting effort, and programmable corporate actions.
Blockchain’s inclusivity and speed capabilities provide equity markets with global accessibility rather than geographic stratification. These are all tangible benefits that on-chain stock trading offers, but speed without proper governance quickly proves to be a hollow victory for everyone involved. As the hype surrounding tokenized stocks advances faster than the law, organizations like the U.S. Securities and Exchange Commission (SEC) have already taken action, recognizing both opportunities and risks.
Liquidity Illusions and Regulatory Gaps
Amid all the excitement, the dangers of on-chain stock trading are often overlooked, namely the little-discussed threat of liquidity. On-chain assets are trading fast, but that doesn’t necessarily mean they are trading low. Academic research shows that tokenized assets (even those with real-world backing) face significant liquidity cliffs, especially during spikes in volatility. Synthetic stocks with thin order books and insufficient liquidity to absorb selloffs are just flash crashes waiting to happen.
The SEC has already stated that tokenized stocks will continue to be classified as securities and subject to full regulatory obligations. A token that looks like a stock, trades like a stock, and behaves like a stock is a stock. Anything other than that, and the lack of regulatory compliance controls is ghost money, nothing more. Companies or exchanges trying to circumvent securities laws by claiming that on-chain is equivalent to “out of jurisdiction” could lead to the entire system collapsing after being labeled a shadow market.
Standards Must Rise or They Will Fall
It’s time to choose to use tokenized stocks as a true upgrade and protect investors, or weaponize blockchain to undermine the safeguards that make public markets trustworthy. Tokenized shares must confer authentic shareholder rights, include enforceable rights to dividends and corporate actions, and be subject to the same disclosure and reporting rules as modern markets. Regulators have already made their stance clear; now, protective measures and compliance must lead the way.
The potential benefit of on-chain stock trading is enormous, but only if the custody, liquidity, and legal protections are adopted by proven public markets. Tokenization should enhance stock markets, not undermine them, so that tokenized stocks can maintain the accountability that modern stock markets require. Standards must be raised to meet economic demands for investor security; otherwise, tokenized stocks will be sidelined.
As Hedy Wang, CEO and co-founder of Block Street, notes, “Tokenized stocks promise speed, not immunity from risk or regulation.” With a background combining institutional finance and decentralized innovation, Wang emphasizes the importance of regulatory compliance and investor protection in the on-chain equity trading space.
Hedy Wang is CEO and co-founder of Block Street, the first unified liquidity layer and derivatives infrastructure for tokenized assets. Hedy is a Harvard alumnus and external advisor to Harvard Business School, with a background combining institutional finance and decentralized innovation. Previously, she led quantitative research at Point72. As CEO of Block Street, Hedy is building the first lending and derivatives infrastructure for tokenized stocks, enabling borrowing, shorting, and yield strategies on real stocks.
For more information on the future of on-chain equity trading, visit https://crypto.news/on-chain-equity-trading-can-reshape-markets-ruin-them/
