Stock Tokenization Platform: How to Seek Balance Between Compliance and Innovation

Introduction

As RWA (real-world assets on-chain) becomes a hot topic in the Web3 space, stock tokenization (Tokenized Stocks), as one of the most promising directions, is receiving increasing attention. The main reasons for the popularity of this field are as follows:

1. The underlying asset is mature and does not require additional proof of its value.
2. The technical threshold is relatively controllable, and the on-chain issuance and mapping tools have already taken shape.
3. The regulatory path is gradually becoming clearer, especially with actual projects landing in Europe and some offshore regions.

However, for many people, mentioning "stocks" raises a series of questions such as securities attributes, retail sales, and licensing requirements. In fact, some projects have found ways to strike a balance between compliance and the market, reducing regulatory pressure while reaching the retail market. The most representative cases include:

• The popular retail securities platform in the US, Robinhood
• xStocks provides stock token trading in non-EU, non-US regions.

This article will focus on a core question: how to build a stock tokenization platform that allows retail investors to participate while controlling compliance risks?

Robinhood Model: Extreme Productization of Retail Securities Trading

Although Robinhood is not a traditional on-chain platform, its operating model provides important insights for Web3 product design.

Core Features

• The interface is simple and eliminates the complex terminology of traditional brokers.
• Zero commission, no minimum deposit, directly serving retail investors
• The securities clearing and custody are completed by partner institutions.

Registration location and Compliance structure

• Robinhood Markets Inc. was founded in California, USA.
• Subsidiaries hold licenses related to US securities trading, subject to dual regulation by the SEC and FINRA
• Stock trading services are only available to US users.

Reason for Regional Restriction

Robinhood only serves the US market, mainly considering:

1. Opening up to overseas users will face complex licensing and registration obligations.
2. Securities regulation is tightening in various regions, and the cost of overseas expansion is high with significant risks.

xStocks Model: The Balance Between Innovation and Compliance

xStocks is one of the few platforms that transforms "stock price mapping" into Token and provides trading, allowing retail investors to participate while cleverly circumventing the securities recognition red line.

Core Structure

• Tokens are mapped to stocks on a 1:1 basis, held by brokers or custodians.
• Tokens do not have voting rights, dividend rights, or governance rights, and the platform does not claim them to be "securities".
• Adopt an "automatic reinvestment" structure to handle dividends, allowing users to receive equivalent Tokens instead of cash.
• Users are required to complete basic KYC, Tokens can be traded on-chain, but users from high-regulation jurisdictions are restricted.

Entity Structure and Registration Location

• The Token issuer is registered in Jersey and is not directly bound by the EU MiCA or Prospectus Regulation.
• The service entity is registered in Bermuda, which is a loose financial regulatory zone.
• Issued by non-U.S. entities to circumvent the applicability of U.S. law

Prohibited Areas and Restriction Logic

xStocks does not provide services to the United States, EU member countries, the United Kingdom, Canada, Japan, Australia, and other regions for reasons including:

1. These areas have strict regulations on securities issuance and may be considered illegal securities issuance.
2. The platform has not obtained licenses or compliance exemptions in these regions.
3. Choosing to register the issuing entity in offshore regions is a common strategy to reduce compliance risks.

The Essential Differences and Common Insights of the Two Modes

Robinhood and xStocks represent two different logics:

• Robinhood: "Operate securities business within a compliance framework"
• xStocks: "Avoiding securities regulation through structural design"

Entrepreneurs need not be either/or, but should learn how to create a "launchable, growth-capable, and risk-averse" platform through legal structures, technological pathways, and compliance isolation.

Practical Implementation Strategies for Stock Tokenization Platforms

To build a stock tokenization platform, at least the following role divisions need to be designed:

• The platform is responsible for "price mapping + Token issuance + user interaction"
• The partner is responsible for "position + report + risk isolation"
• Both parties interact through agreements and information synchronization mechanisms, but regulatory responsibilities are clearly separated.

necessary partners

• Licensed broker (responsible for actual stock custody or trade execution)
• Blockchain issuance platform and technology party (deploying contracts, permission control modules, oracles)
• Legal Advisor (Token qualitative analysis, structural design, user agreement)
• KYC/AML service provider
• Smart Contract Auditing Party

Key Protocol

• Token issuance white paper and legal disclosure instructions
• Custody Service Agreement/Custody Certificate
• Platform User Agreement and Risk Disclosure Statement
• Compliance service integration agreement (KYC, IP blocking, etc.)
• Token and platform linkage contract documentation

Key Considerations

The following points are crucial, and mishandling them could lead to serious regulatory issues:

• Tokens must not be granted any "profit promises", "governance rights", or "claims rights".
• Strictly restrict participation of users from highly sensitive legal jurisdictions.
• Avoid using sensitive expressions such as "stocks", "shareholder rights", "dividends", etc.
• Dual control of region and identity through technology and protocols
• Prepare legal qualification opinions, risk disclosure statements, and KYC review records for reference.

Conclusion

Stock tokenization is a field that presents both opportunities and challenges. The key to success lies not in holding a specific license, but in how to design a reasonable structure. Entrepreneurs need to:

• Choose a suitable landing location
• Design a clear structure
• Clarify the actual representation of the Token
• Avoid touching the red lines of users, markets, and laws

Currently, the market is still in a phase where institutions are paying attention but acting cautiously, while entrepreneurs are interested yet hesitant. For aspiring entrepreneurs, now is a great time to enter this field. The key is to design a "compliance-acceptable, user-participating, technologically-feasible" platform from the very beginning to lay a solid foundation for future development.