TechFlowPost has published an article by 0xRickyW that examines the structure behind onchain stocks, why the model matters, and where startups may find viable business openings.
The article starts with a recurring question. If someone has conviction about the direction the world is moving in, why not package that view into a portfolio, buy it with crypto, and let others buy into the same exposure. One example in the piece is a thesis that artificial intelligence will sharply increase power demand. In that case, an investor may want exposure across generators, grid operators, and equipment makers. The point is not just to get five ticker symbols from a chatbot. It is to understand the exposure, buy a basket of assets, and keep using that position as the view evolves.
That leads to a more basic set of questions: can this already be done in a standard brokerage account, what exactly does putting it onchain add, who holds the stock, what does the token represent, how does money come back out, and where can startups build something real.
What buyers are actually getting
The article argues that stock investing is already highly digital. An investor taps a button in an app and account balances change. Blockchain is not what made stocks digital in the first place.
Behind that user interface, brokers process orders, trading venues match buyers and sellers, clearing and settlement systems determine obligations and complete delivery, and custodians and registrars keep securities and ownership records. Some institutions perform more than one of those functions.
In a common brokerage structure, the investor is the beneficial owner, while an intermediary or nominee holder is the registered owner. That leaves a layer of records and legal relationships between the investor and the company. The article points to Investor.gov for a short explanation of that distinction.
It then says that “onchain stock” can refer to several different things:
- tokens linked to real share ownership or a recognized indirect securities interest,
- third-party products backed by shares held elsewhere,
- derivatives that track a stock price but do not grant ownership of that stock.
The second category is where confusion shows up most often. A product can be fully collateralized with stock and still remain a certificate issued by another company rather than equity in the company named by the token.
xStocks is used as an example. The article says xStocks describes its products as fully collateralized tracker certificates, not direct equity, and that they do not grant shareholder voting rights. It also cites an SEC staff overview that says tokenized structures can give investors different rights depending on how they are set up.
That leaves two separate questions. What is the token backed by, and what rights can the holder actually claim. Even if a token includes Apple in its name, those answers do not come automatically. If the issuer fails, the holder’s claim depends on the structure.
How stock becomes a token
The article walks through a simplified stock-backed product. It assumes Apple at $100 purely for illustration, not as a live market price.
In this setup, an issuer arranges for real shares to be placed in a designated brokerage or custody account. The issuer creates the product, the broker helps buy and sell the stock, and the custodian holds the position. Apple itself does not need to be the token issuer.
The issuer then creates, or mints, tokens according to the product terms. If one token starts out representing one share, that does not create an extra Apple share. It creates a rights representation linked to an existing asset. Dividends, stock splits, and product design can change the conversion ratio over time.
Some systems let authorized institutions convert between stock and tokens. Others allow qualified clients, after onboarding, to issue and redeem directly. The article names Alpaca’s authorized participant guide as one concrete example.
Distribution comes next. Exchanges or investment apps make the product available to qualified users. Market makers quote bids and offers and use their own inventory and capital to take risk. The article draws a distinction here: the exchange is the venue, while the market maker is one participant in that venue.
Tokens may stay on a platform or, where supported, move into a personal wallet. But self-custody of the token does not mean the underlying custodian disappears. An onchain balance can show that tokens exist in a wallet. It cannot, by itself, prove that the underlying stock is sitting in a brokerage account.
The article says there are usually two exit paths, and they are not the same:
- Sell: another buyer takes over tokens already in circulation.
- Redeem: the holder goes through the issuer’s process, the token leaves circulation, and the holder receives cash, stablecoins, or securities under the product terms.
Being able to buy the token does not automatically mean the buyer is eligible for direct redemption. Thresholds, fees, timing, and eligibility rules all matter.
The piece adds another point that is easy to miss. If a token changes hands 10 times, that does not mean 10 new shares have appeared. Trading volume and the amount of underlying assets supporting the product are different measurements.
How token prices stay linked to the underlying stock
The article uses a simple example. If the stock is at $100 and the token trades at $105, a qualified institution may be able to buy the stock, mint tokens, and sell them. If the spread covers costs and risk, the trade works. Extra token supply can then help push the token price back toward the stock. If the token is too cheap, buying and redeeming can move the process the other way.
That is arbitrage. The key, the article says, is whether these trades can actually be executed, not whether there is a price feed on a screen.
It also asks what happens on a Sunday, when the token keeps trading but the underlying equity market is closed. How hard is it for market makers to hedge. Can anyone redeem. What price should traders use. Those questions affect the quality of execution.
For that reason, “24/7 trading” does not mean investors will always get a good execution price at any hour. Spreads can widen. Prices can drift. The article points readers to xStocks’ explanation of primary and secondary markets for more detail.
The industry stack behind onchain stocks
The article reduces the sector to a simple chain:
stocks → brokerage and custody → legal structure and token issuance → trading and distribution → portfolios, lending, and other applications.
At the top are the assets and the rights attached to them. In the middle are the structures that turn those rights into something users can access and trade. At the bottom are products that people may actually want to use.
The broader stack also includes:
- blockchains and smart contracts that record balances and execute written rules,
- stablecoins and payment rails that move funds but carry their own issuance and redemption risk,
- wallet and security systems that manage keys, authorizations, and permissions,
- market data and oracles that bring prices and outside information into applications, while price oracles are not proof of reserves,
- compliance systems that decide who can buy, hold, transfer out, and redeem under the applicable rules,
- services that handle dividends, stock splits, mergers, and other corporate actions, plus reconciliation systems that check token balances, custody records, and client accounts against one another.
The article says finality onchain does not mean every securities or banking step underneath settles at the same moment. Institutions, operating processes, and legal obligations remain in place.
Every party in the stack also needs a business model. Brokers and custodians charge fees. Issuers may charge product fees or issuance and redemption fees. Exchanges charge trading fees. Market makers earn spreads and manage risk. Infrastructure companies sell software. Applications monetize through users or distribution.
From the investor’s point of view, the article says the important question is who gets paid for solving the problem. A high volume of transactions through one network does not automatically mean high revenue. Strong business performance also does not mean token holders share in that profit.
Why put stocks onchain at all
The article notes that traditional brokers already offer fractional shares, portfolios, and securities-backed lending. None of that came from crypto. What matters is what changes when stock exposure can sit inside the same infrastructure people already use to hold stablecoins, trade, borrow, lend, and build financial products.
It lists five areas where that matters.
1. Easier access, with stablecoins as the funding rail
Good brokerage accounts are not equally easy to open everywhere. For someone who already holds stablecoins, redeeming into bank money first and then funding another account adds friction.
Tokenized stocks can offer qualified investors a more direct path from stablecoins into stock exposure. According to the article, that can make investment products easier to distribute across markets, especially for users who are already active in crypto. It does not remove local rules or onboarding requirements, and individual products may still face geographic restrictions. It does simplify the funding and distribution experience.
2. Developers can spend less time rebuilding the basics
A portfolio built around the thesis that AI will increase electricity demand needs more than a list of companies. It needs the ability to buy assets, hold them, rebalance them, and possibly connect to financing.
If the environment already supports tokens and protocols, developers can reuse existing wallets, trading venues, lending rails, and smart contracts. That opens room for indexes, derivatives, automated portfolios, and products that do not exist yet.
The article sees the advantage in lower startup and experimentation costs. Small teams can focus on the part of the experience that actually sets them apart.
3. Investors can move positions, not just cash
When investors find a better app, they may want to move their existing position instead of selling, withdrawing cash, and buying again elsewhere. Traditional brokers already support in-kind transfers. The onchain opportunity, the article says, is to make positions easier to move and use across compatible wallets, apps, and protocols.
Transferable stock tokens could make that possible between compatible wallets and platforms. The article cites xStocks as a design intended for use across wallets, exchanges, and DeFi protocols.
Compatibility still matters. But once the asset can move with the user, the relationship between the investor and the app changes. The app has to keep earning that business.
4. A position does not have to sit idle
Qualified stock tokens can be used for collateralized borrowing or margin. The article says this is already happening and gives one example: Kamino supports borrowing USDC against selected xStocks.
Where supported, holders may also lend the tokens out to earn interest paid by borrowers, or provide them to automated market makers and collect trading fees. The article points to Uniswap’s fee mechanism as an example of revenue tied to real trading activity.
It adds a warning as well. These are extra options, not free yield. Borrowing carries liquidation risk. Lending and providing liquidity add risks beyond simply holding the asset.
5. Trading and settlement can run on internet time
News does not wait for the closing bell. Supported token markets can continue trading at night and on weekends, letting investors react without waiting for the next market open.
There is also a separate settlement advantage. A stock token and a stablecoin can be exchanged in one atomic onchain trade, where both sides happen together or neither side happens at all. That reduces the risk of delivering one leg and not receiving the other.
The article makes the distinction explicit. A token may trade 24/7, but that does not mean the underlying stock market or the primary issuance and redemption window is always open. Even if the market is open, spreads may not stay tight.
Taken together, the article says, those factors explain the bullish view on the direction. More people can access the assets. Developers can build products around them. Investors can do more with the positions they already hold. That shortens the path from a broad view about where the world is headed to a portfolio that can actually be bought, moved, and used. The result is more meaningful than just putting stock tickers in a crypto wallet.
Where startups can build
The article narrows the openings to three areas: turning investment ideas into investable products, scaling the operating layer, and making financing usable.
1. Turn investment ideas into products people can actually buy
A theme such as “AI will increase power demand” still leaves users with a lot of work: selecting assets, understanding risk, placing trades, and keeping the portfolio updated. Startups can compress that workflow and, where permitted, let others follow the strategy.
The opportunity is to own that experience for a specific user group. AI-generated ticker lists are easy to copy. Distribution, a credible performance record, and products that users continue funding are much harder to copy. The article says being onchain has to improve how the portfolio is held, transferred, or used elsewhere.
2. Build software that helps tokenized stock operations scale across providers
Issuers, brokers, custodians, and applications all need records that match. That remains true when trades fail, redemptions are delayed, or a stock pays a dividend or goes through a split. Startups can sell software that handles reconciliation, coordinates updates, and helps operators work through exceptions.
The article says a practical entry point is a workflow with clear costs and obvious buyers. Support across multiple service providers would let independent products move beyond the internal system of any single issuer. Reliable integrations and a track record of handling hard cases can create switching costs. Endless one-off custom work for every client does not scale into a software business.
3. Make qualified stock tokens usable as collateral
For a stock token to work as useful collateral, lenders need to price it, understand the legal rights behind it, and recover value if the borrower cannot repay. Market closures, redemption restrictions, and differences between issuers make that much more complicated than plugging in a stock price feed.
That creates room for startups to build collateral assessment, risk management, and liquidation tools for lending platforms without becoming lenders themselves. The value lies in helping platforms decide what to accept, how much to lend, and how to exit under stress. That depends on reliable data and real liquidity, not only on a smart contract.
The article closes by saying these are three different businesses: user-facing investment products, operating software for financial institutions, and infrastructure for lending. Each one needs a specific customer and a reason to exist that goes beyond simply putting a token onchain.
The article is credited to 0xRickyW. Translation is credited to AididiaoJP and Foresight News.