US stocks on the blockchain and STO: a hidden narrative

Author: Tech Flow

Narrative Background

Just a few days ago, Coinbase CEO Brian Armstrong and CFO Alesia Haas both expressed their consideration of tokenizing Coinbase's shares to enable trading of U.S. stocks on the Base blockchain.

In this crypto cycle where innovation is boring and PVP is the main line, we finally see the dawn of something interesting.

If the progress goes smoothly, U.S. stocks will become the third largest category of RWA assets after stablecoins (USDT, USDC) and treasury bonds (Buidl). If the regulatory and compliance framework is clear and provides sufficient freedom for U.S. stock tokens, U.S. stock tokenized assets should have the hope of surpassing the current scale of treasury bond tokens in the short term, because they provide the high volatility and speculation that crypto users prefer.

Business Logic

Compared with the narratives such as Crypto AI agent and desci (decentralized scientific research) that appeared in this cycle, the value proposition of U.S. stocks on the chain is clear, and the needs of both supply and demand are very clear. Specifically:

The value proposition of U.S. stocks on the chain is similar to other Defi products, which is reflected in a larger free market and superior composability:

1. Expanded the scale of the trading market: Provided a 7×24-hour, borderless, and unlicensed trading venue for U.S. stock trading, which is currently impossible for Nasdaq and NYSE (although Nasdaq has applied for 24-hour trading, it is expected to be realized in the second half of 26)

The needs of both the supply and demand sides are also very clear:

Supply side (U.S. listed companies): Through the borderless blockchain platform, potential investors from all over the world are reached, and more potential buying orders are obtained

Demand side (investors): Many investors who were unable to directly trade U.S. stocks for various reasons in the past can directly configure and speculate on U.S. stock assets through blockchain

In fact, the idea of ​​putting U.S. stocks on the chain has been attempted before. For example, Coinbase actually tried to go public by issuing security tokens (representing its stock $COIN) as early as 2020, but it was shelved due to regulatory obstacles from the U.S. SEC.

During the last round of Defi boom, we also saw synthetic assets of US stocks in products such as Terra's Mirror and Ethereum's Synthetix, but they also gradually declined due to the regulatory deterrence of the SEC.

Earlier, Polymath, a securitization token issuance project founded and financed in 2017, promoted the concept of STO (Security Token Offering), that is, companies issue tokens representing securities rights through blockchain technology, and investors obtain rights similar to traditional financial instruments such as stocks and bonds (such as dividends and voting rights), which also attracted a lot of attention from the market at the time.

Today, the main driving force for the resurgence of the STO concept and the feasibility of US stocks on the chain comes from the substantial attitude shift of the SEC after the change of leadership, from the past strong regulatory confrontation to innovation support within the compliance framework.

Within the visible range, STO may be one of the few crypto business narratives with a large impact, reasonable business logic, and a high ceiling in this cycle.

Related targets

Based on the background and logic of the narrative, we can sort out the targets related to the secondary market of crypto.

In fact, there are not many STO concept projects that have issued coins and listed on major exchanges.

The most relevant one may be Polymath, which was established in 2017 and was the first to conduct STO concept education in the crypto industry. It later launched the Polymesh blockchain, a public permissioned blockchain built for compliant assets (such as security tokens), with built-in identity authentication, compliance checks, privacy protection, governance, and instant settlement.

Polymesh has a good reputation in the industry, including BlackRock's issuance of a digital bond of US$500 million on Polymesh in November last year, and real estate giant CBRE also issued a real estate share token based on it.

Polymesh's token has been listed on Binance, and the token is called Polyx. Currently, MC and FDV are both over 100 million, and the market value is not high.

In addition, although RWA concept projects such as Ondo have mainly focused on the issuance of tokenized assets in the field of treasury bonds in the past, their products can also be adjusted according to compliance regulations to serve the tokenization scenario of stocks. Moreover, Ondo is very close to the Trump family, and may get more conveniences, either explicit or implicit, and even the support of Trump family members (although the marginal impact of similar actions has become weaker and weaker).

Chainlink has also done a lot of work connecting many traditional financial institutions and blockchains. As a mainstream oracle solution and securities tokenization service provider, it will theoretically benefit from this.

Risks to be aware of

The reason why the title of this article uses "hidden but not yet released" to describe the narrative of this wave of STO is that there are still many uncertainties about whether it can take off. Although from the various measures of the new SEC team (withdrawing a large number of crypto lawsuits), its attitude towards STO also tends to be relaxed, but when a clear compliance framework for guiding STO can be issued is still unknown and needs to be closely observed, which determines the speed at which companies such as Coinbase follow up and advance.

The most recent observation event is the first roundtable meeting held by the SEC Crypto Working Group on the 21st of this month. The roundtable itself is designed to provide a clear regulatory framework. The theme of this first meeting is "Defining the Status of Securities: History and Future Paths", and one of the agendas of the meeting is the design of compliance paths.

More importantly, one of the keynote speakers was Paul Grewal, the chief legal officer of Coinbase, the protagonist of this STO narrative.

If the STO-related compliance framework is introduced slowly and the waiting time is too long, the current undercurrent narrative may be delayed or even annihilated.