Apple, Tesla and Nvidia Shares to Trade as Digital Tokens on Crypto Exchange Kraken — WSJ

By Alexander OsipovichKraken, the cryptocurrency exchange, plans to allow non-U. S. customers to trade Apple, Tesla, Nvidia and other popular stocks as tokens over a digital ledger.Such "tokenized equities" would make it easier for non-Americans to invest in U.S. stocks, the company says. Like bitcoin, they would trade 24 hours a day, seven days a week — even when the U.S. stock market is closed.Kraken said the rollout would start in the coming weeks, with the tokenized stocks going live in Europe, Latin America, Africa and Asia. Kraken's U.S. customers won't be able to trade them.What exactly is Kraken launching?Kraken — which is based in the U.S. and has customers in more than 190 countries — plans to launch tokenized versions of more than 50 stocks and exchange-traded funds.Some of the ETFs it plans to tokenize include the SPDR S&P 500 ETF, the index fund known by the ticker SPY, and SPDR Gold Shares. Kraken refers to its new breed of tokens with the brand name "xStocks." They will be deployed on the Solana blockchain platform. Blockchains are decentralized ledgers that record crypto transactions.Behind the scenes, xStocks tokens will be backed by shares of the underlying security, with Kraken's partner company Backed Finance acquiring new shares as needed, the companies say. The tokens are to be redeemable for the cash value of the underlying securities. In theory, that should keep the tokens' prices in line with the prices of the corresponding stocks and ETFs.What's the point of putting stocks on the blockchain?Besides offering 24/7 trading, Kraken says its tokenized stocks will benefit international investors by giving them a cheaper, easier way to access the U.S. stock market.Overseas investors can currently buy U.S. stocks through local brokerages, but "it typically involves very high fees and slow settlement times," Kraken co-Chief Executive Arjun Sethi said in an interview. "There's a lot of friction."Investors holding xStocks may eventually be able to trade them on crypto exchanges besides Kraken. They could move them into personal digital wallets where they hold their cryptocurrencies.Adventurous investors could even pledge their tokenized Apple and Tesla stock as collateral for crypto trading strategies.Have tokenized stocks been attempted before?Binance, the world's largest crypto exchange, introduced tokenized versions of Tesla and other U.S. stocks in 2021. But it pulled the plug on them a few months later after regulators around the world warned that Binance didn't have the needed licenses to offer them locally.Similarly, Kraken must navigate an international thicket of regulations to ensure its xStocks are offered legally in each country. A spokeswoman for Kraken said the company is "actively working with various regulators."Proponents of blockchain technology have argued for years that tokenization provides various advantages over the traditional way of setting stock trades. Such discussions have heated up in recent months as the Trump administration and Congress have moved to rewrite the rules for crypto trading. The Securities and Exchange Commission hosted a roundtable discussion on tokenization earlier this month, and firms such as BlackRock and Robinhood Markets have advocated tokenizing securities.Write to Alexander Osipovich at [email protected]