More than half of tokenized stock trading occurs outside regular U.S. market hours, with approximately 80% of trades involving less than one full share, according to the International Monetary Fund's (IMF) latest Global Financial Stability Report. This indicates a strong demand for fractional ownership among retail investors, even as the market remains small and concentrated.
Key takeaways
- Over 50% of tokenized stock trading happens outside regular U.S. market hours, showing demand for 24/7 access.
- About 80% of tokenized stock trades are for less than one share, indicating strong retail interest in fractional ownership.
- Tokenized equities were found to be 1.5 times more volatile and less liquid than their underlying traditional stocks.
- The tokenized stock market is currently small, valued at approximately $2.3 billion, with two firms accounting for over 70% of it.
- The IMF urges regulators to consider circuit breakers for 24/7 trading and to monitor links between tokenized and traditional markets.
Tokenized Stocks See Demand for Fractional Ownership and Off-Hours Trading
The IMF's recent Global Financial Stability Report, detailed by Decrypt, reveals significant activity in tokenized stocks occurring outside traditional U.S. market hours. More than 50% of trading in these blockchain-based tokens, which track shares of publicly traded companies, takes place when U.S. markets are closed. Furthermore, roughly 80% of these trades are for less than one share, suggesting a notable interest from retail investors in fractional ownership.
The IMF analyzed the five most liquid tokenized U.S. equities, including those tracking Tesla, Nvidia, and the S&P 500, across 11 trading venues over 365 days. The report indicates that on-chain prices carry real information, as traditional stocks absorbed 87% to 99% of overnight tokenized price movements when markets reopened.
Increased Volatility and Liquidity Concerns
Despite the demand, the IMF highlighted several drawbacks for tokenized equities. These assets were found to be approximately 1.5 times more volatile than their underlying traditional stocks. Liquidity, or the ease with which an asset can be converted into cash without affecting its market price, was also significantly lower for tokenized equities, particularly on decentralized exchanges where prices diverged more from traditional markets.
The current market for tokenized stocks is relatively small and concentrated, valued at around $2.3 billion. Ondo Finance and Backed Finance's xStocks collectively account for over 70% of this market. Both firms issue synthetic tokens, which provide price exposure without direct ownership of the underlying shares.
Regulatory Scrutiny and Systemic Risk
Given the nascent stage of the tokenized stock market, the IMF advised that its findings should be interpreted with caution, noting that systemic risks remain limited for now. However, the report urged regulators to consider implementing circuit breakers for 24/7 trading environments and to more closely monitor the connections between tokenized and traditional markets. This follows an earlier warning from the IMF that tokenized finance and stablecoins could potentially amplify financial crises.
The report's release coincides with a push by major U.S. financial players into the tokenization space. The NYSE, for example, plans to engage crypto investors through Blockchain.com, and its owner, ICE, is collaborating with OKX on 24/7 tokenized stock trading under a new SEC innovation exemption.
What This Means for Holders
While tokenized stocks are distinct from Bitcoin, the IMF's observations on 24/7 trading and fractional ownership highlight a broader trend in financial markets toward greater accessibility and continuous operation. For Bitcoin holders, this indicates a potential future where more traditional assets might adopt blockchain technology, potentially influencing the regulatory landscape and market infrastructure that also impacts digital assets. The increased volatility and liquidity issues noted by the IMF serve as a reminder that new financial products, even those leveraging blockchain, come with their own set of risks.
The call for regulatory oversight, including circuit breakers, suggests that policymakers are actively assessing how to integrate these new forms of finance safely. This could set precedents for how other digital assets, including Bitcoin, are regulated in the future, particularly concerning market stability and investor protection.
What to Watch Next
Investors should monitor regulatory responses to the IMF's recommendations, especially regarding the implementation of circuit breakers for 24/7 trading and enhanced oversight of links between tokenized and traditional markets. The actions of major financial institutions like the NYSE and Coinbase in expanding tokenized offerings will also be key indicators of market development. Coinbase, for instance, launched tokenized stocks for non-U.S. users on Base in August.
The evolution of liquidity and volatility in tokenized markets will be crucial to observe. If these issues are addressed, tokenized assets could become a more viable option for a wider range of investors. Conversely, persistent challenges could lead to stricter regulations or slower adoption, impacting the broader digital asset ecosystem.