RickyW, a member of the YZi Labs investment team, says his recent work on onchain equities keeps circling back to one basic question: what exactly gets better when stocks move onto a blockchain.
In an article translated by ChainCatcher, he starts with a simple product idea. If he has conviction in a trend, why shouldn’t he be able to turn that view into a portfolio, buy it with crypto, and let others allocate alongside it? He uses the example of AI driving a sharp rise in power demand, which could lead him to a basket of generation companies, grid operators and equipment makers. What he wants is not a chatbot handing back five stock tickers. He wants to see what the portfolio actually owns, buy that basket, and keep adjusting and using it as his view changes.
That product interests him. But he says it quickly leads to a harder question: couldn’t something similar be built on top of a standard brokerage account already, and if so, what does putting it onchain really improve?
Before getting excited about tokenized stock products, RickyW says he wants to understand the machinery underneath them. Who actually holds the shares? What does the token represent? How does a holder get money back out? And at which points can a startup build a real business instead of just wrapping existing assets in a new interface?
What buyers are actually getting
RickyW writes that buying stocks already feels highly digital. A user opens an app, taps a button and sees a number change. But blockchain is not what made equities digital in the first place.
Behind that button sits the familiar securities stack: brokers handle orders, trading venues match buyers and sellers, clearing and settlement systems calculate who owes cash and securities and complete delivery, while custodians and transfer or record-keeping institutions safeguard the assets and maintain ownership records. In some cases, a single institution handles several of those functions.
Under one common brokerage arrangement, the investor is the beneficial owner of the shares, while the registered holder on record may be an intermediary or nominee. In other words, there is already a formal set of records and legal relationships between an investor and a listed company. RickyW notes that Investor.gov provides a simple explanation of that distinction.
He says the phrase “onchain stocks” can refer to several different things:
- tokens tied to actual share ownership or legally recognized indirect securities interests;
- products issued by a third party and backed by shares held elsewhere in custody;
- derivatives that track a stock price without granting ownership of the stock itself.
He sees the second category as the easiest place for confusion. A product may be fully backed by shares and still amount to a certificate issued by another company, not equity in the company named on the token.
As one example, he says xStocks describes its products as fully collateralized tracker certificates rather than direct equity, and explicitly states that holders do not receive shareholder voting rights. He also points to a U.S. Securities and Exchange Commission staff overview explaining why different tokenization structures can grant different rights to investors.
That leads him to break the issue into two questions: what asset backs the token, and what rights can the holder actually assert? A token carrying Apple’s name does not answer either question on its own. Nor does it tell investors what happens to their claim if the issuer fails.
How one share becomes a token
To explain how a stock-backed product can work, RickyW uses a simplified example. Assume one Apple share is worth $100. He notes that this is only an illustration and not the current market price.
In that structure, an issuer arranges for real shares to be held in a designated securities or custody account. The issuer sets up the product, a broker helps buy and sell the shares, and a custodian safekeeps the assets. Apple itself does not have to be the token issuer.
The issuer then creates, or mints, tokens according to the product terms. If one token initially corresponds to one share, that does not mean a new Apple share has been created. It means a token has been created to represent rights related to an existing asset. Dividends, stock splits and the product design itself may all change that exchange ratio over time.
Some systems let authorized institutions convert between shares and tokens. Others allow eligible customers to subscribe to and redeem tokens directly after account setup and review. RickyW cites Alpaca’s authorized participant guide as a concrete example.
Distribution comes next. Exchanges or investment apps make the products available to eligible users. Market makers post bids and offers and take risk using their own inventory and capital. The exchange is the venue; the market maker is one participant within it.
Users may hold the tokens through a platform, or in their own wallet if the product supports that option. But self-custody of the token does not erase the need for a custody institution underneath the product. A blockchain can show a token balance. It cannot independently prove that the corresponding shares really sit in a securities account somewhere.
RickyW says holders generally face two different exit routes:
- Sell: another buyer takes over the existing token.
- Redeem: the token leaves circulation through the issuer’s process, and the holder receives whatever asset the product terms specify, which could be cash, a stablecoin or securities.
He stresses that the ability to buy a token does not automatically mean the buyer is eligible for direct redemption. Minimum size, fees, timing and qualification requirements all matter. He also adds that if one token changes hands 10 times, it does not mean 10 new underlying shares have been bought. Trading volume and the size of the backing asset pool are different numbers.
Why token prices can track stock prices
RickyW gives a simple arbitrage example. If the stock trades at $100 and the token trades at $105, an eligible institution may be able to buy the share, create the token and sell the token. If the spread covers costs and risk, that trade is profitable. Additional token supply can then push the token price back down. If the token trades too low, buying and redeeming can work in the other direction.
That is the arbitrage mechanism. But he says the key issue is not whether a live price appears on a screen. It is whether the trade can actually be executed.
The limits become more obvious when the underlying market is closed. Suppose it is Sunday and the token is still trading while the stock market is shut. How easily can market makers hedge? Can anyone redeem at that time? At what price?
For that reason, he does not equate 24/7 trading with the ability to trade at a fair price whenever a holder wants. Bid-ask spreads may widen, and the token can drift away from the stock price. He says xStocks’ explanation of primary and secondary markets is useful reading on this point.
Who does what in the stack
RickyW says the simplest breakdown he has found looks like this:
Stocks → brokerage and custody → legal structuring and token issuance → trading and distribution → portfolios, lending and other applications.
Upstream players handle the asset itself and the rights attached to it. The middle layer turns those rights into products that people can access and trade. The downstream layer builds applications people actually want to use.
He also lists the supporting functions that keep the full system operating:
- blockchains and smart contracts record balances and enforce preset rules;
- stablecoins and payment rails move funds, while introducing their own issuer and redemption risks;
- wallets and security systems manage keys, approvals and permissions;
- market data feeds and oracles bring prices and external information into applications, though a price oracle is not the same thing as proof of reserves;
- compliance systems determine who can buy, hold, transfer and redeem under the applicable rules;
- lifecycle services handle dividends, stock splits and mergers, while reconciliation checks whether token balances, custody records and customer accounts actually match.
A transfer may be final onchain, he writes, without every securities or banking process beneath it settling at the same moment. Institutions, operational workflows and legal obligations still sit underneath the blockchain layer.
Every participant also needs a business model. Brokers and custodians charge service fees. Issuers may charge product fees or subscription and redemption fees. Exchanges charge trading fees. Market makers earn the spread while managing risk. Infrastructure firms sell software. Applications need revenue from users or distribution channels.
From an investor’s perspective, RickyW says the key question is who is solving a real problem and getting paid for it. Large transaction volume moving across a network does not automatically mean the network captures large revenue. A company running a solid business also does not automatically mean token holders share in its profits.
Five reasons he thinks onchain stocks matter
RickyW first notes that traditional brokers already offer fractional shares, portfolios and securities-backed lending. Those are not inventions of crypto. What interests him is what happens when people can use the same infrastructure to invest in stocks while also holding stablecoins, trading, borrowing and building financial products.
1. Stablecoin funding can make access easier
Not everyone around the world can easily open a brokerage account that works well for them. For people who already hold stablecoins, converting them into bank-account fiat and then wiring funds into another account adds friction.
Tokenized stocks can offer eligible investors a more direct path from stablecoin holdings to stock exposure. That can make investment products easier to distribute across markets, especially to people who already use crypto. RickyW is clear that this does not remove local regulatory rules or account-review requirements, and products may still come with geographic limits. But it can simplify funding and distribution in a meaningful way.
2. Developers can build more without rebuilding everything
If someone wants to build a portfolio around the thesis that AI will drive electricity demand, a list of companies is not enough. The product needs a way to buy assets, hold them, rebalance them and tap financing when needed.
With compatible tokens and protocols, developers can reuse existing wallets, trading venues, lending infrastructure and smart contracts. RickyW says that creates room for indexes, derivatives, automated portfolios and products that have not been imagined yet. The advantage is a lower starting cost for experimentation, letting a small team focus on the part of the experience that is truly differentiated.
3. Investors may be able to move positions, not just money
If RickyW finds a better application, he would rather move an existing position over directly than sell, withdraw cash and buy back in somewhere else.
Traditional brokers already allow in-kind transfers without forcing a sale. The onchain opportunity, in his view, is to make holdings easier to move and use across compatible wallets, apps and protocols. Transferable stock tokens could support that. He points to xStocks as one design that supports use across wallets, exchanges and DeFi protocols.
Compatibility still matters. But once investors can leave with their assets, the relationship between users and applications changes. Apps have to keep delivering value if they want to keep the business.
4. Holdings do not have to sit idle in an account
Eligible stock tokens can be used as collateral for borrowing or for margin. RickyW says this is already happening, citing Kamino’s support for borrowing USDC against some xStocks products.
If supported by the relevant products and platforms, holders may also lend tokens to earn interest paid by borrowers, or provide liquidity to automated market makers and collect trading fees. He points to Uniswap’s fee mechanism as an example showing that those fees come from actual trading activity.
He adds a clear warning: these are additional options, not cost-free yield. Borrowing brings liquidation risk. Lending assets out or providing liquidity introduces risks beyond simply holding the asset.
5. Trading and settlement can keep running like the internet
News does not stop when stock exchanges close. Token markets that support extended hours can keep operating at night and on weekends, allowing investors to react without waiting for the next opening bell.
There is also a separate settlement benefit. A stock token and a stablecoin can be exchanged in the same onchain atomic transaction, meaning delivery happens for both sides together or not at all. That reduces the risk that one side delivers an asset and the other side fails to deliver in return.
RickyW again draws a boundary around the claim. Tokens trading 24/7 does not mean investors can access the underlying stock market at all times, and it does not mean primary-market subscriptions and redemptions are always open. Continuous trading also does not mean spreads will stay tight.
Taken together, he says these factors explain why the direction is attractive to him. More people may be able to access the assets, developers can build products around them, and investors may find more uses for their positions. In his opening portfolio example, that could shorten the path between “I believe the world is moving this way” and owning a portfolio that can be bought, moved and used. He says that is far more interesting than simply dropping a stock ticker into a crypto wallet.
Three startup opportunities
RickyW says three areas stand out: turning investment ideas into investable products, making operations scalable across service providers, and providing financing support that is actually useful.
1. Turn an investment thesis into something people can buy
A view like “AI will drive electricity demand” still leaves users with a lot of work: choosing assets, understanding risk, executing trades and keeping the portfolio updated. Startups can package those steps into a single experience and, where rules allow, let others follow the strategy.
The opportunity lies in building a complete product for a specific audience. An AI-generated list of stock tickers is easy to copy. Distribution, a credible performance record and a product people are willing to keep funding are harder to reproduce. In his view, putting it onchain only matters if it materially improves how the portfolio is held, transferred or used in other settings.
2. Build software that lets tokenized stock operations scale
Even when trades fail, redemptions are delayed, or a stock goes through a dividend or split event, records still need to match across the issuer, broker, custodian and application layer. Startups can build software to reconcile those records, coordinate updates and help operators work through exceptions.
RickyW says one practical entry point is to target a costly workflow with a clear paying customer. Support for multiple service providers would make the product more useful than an internal tool for one issuer. Reliable integrations and experience dealing with edge cases can raise switching costs for customers. But if every customer requires endless customization, the business will struggle to become scalable software.
3. Help make eligible stock tokens usable as collateral
A stock token becomes useful collateral only if a lender can value it, understand the legal rights attached to it, and recover funds by disposing of the collateral when a borrower cannot repay. Market closures, redemption limits and differences between issuers make this much more complex 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 is in helping platforms decide which collateral to accept, how much to lend against it, and how to exit when markets come under stress. RickyW says that depends on reliable data and real usable liquidity. Smart contracts alone are not enough.
He closes by describing these as three distinct businesses: user-facing investment products, operating software for financial institutions, and infrastructure for lending. Each one needs a clear customer and a reason to exist that goes beyond simply putting a token on a blockchain.