US stocks and STO: A hidden and unpublished RWA narrative

Author: Alex Xu

Narrative background

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

In this innovation-boring and PVP-based encryption cycle, we finally see the dawn of something interesting.

If the progress goes smoothly, US stocks will become the third largest RWA asset after stablecoins (USDT, USDC) and Treasury bonds (Buidl). If the regulatory and compliance framework is clear, it will provide sufficient freedom for US stock tokens. US stock tokenized assets should have the hope to surpass the current scale of Treasury tokens in the short term, because it provides the high volatility and speculativeness that crypto users prefer.

Business Logic

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

The value proposition on the US stock market is similar to other Defi products, reflected in a larger free market and superior composability:

1. Expand the size of the trading market: Provides a 7×24-hour, borderless and licenseless trading venue for US stock trading, which is currently impossible for both the Nasdaq and the New York Stock Exchange (although Nasdaq is already applying for 24-hour trading, it is expected to be realized until the second half of 26 years)

2. Superior Composability: By combining with other existing Defi infrastructure, U.S. stock assets can be used as collateral, margin, index and fund products, and many unthinkable ways of playing are derived.

The demands of both supply and demand are also clear:

• Supplier (US listed company): reached potential investors from all over the world through borderless blockchain platform and gained more potential buys
• Demand side (investor): Many investors who were unable to trade US stocks directly for various reasons in the past can directly allocate and speculate US stock assets through blockchain.

In fact, the idea of ​​U.S. stocks have been tried long ago. For example, Coinbase actually tried to list by issuing securities tokens (representing its stock $COIN) as early as 2020, but it was shelved due to regulatory obstacles from the US SEC.

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

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

Nowadays, the main driving force that makes the STO concept revived and the US stock market feasible is the substantial shift in attitude of the SEC after the change of leadership, from the past strong regulatory confrontation to innovative support within the compliance framework.

Within the reach of sight, STO may be one of the few encrypted business narratives with a large impact, reasonable business logic, and high ceilings in this cycle.

Related targets

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

In fact, there are not many STO concept projects that have issued coins and launched the Dashu.

The most relevant one is Polymath, which was established in 17 years and was the first to educate STO concepts in the crypto industry. Later, it launched the Polymesh blockchain, a publicly licensed blockchain specially designed for compliant assets (such as securities tokens), with built-in functions such as identity authentication, compliance inspection, privacy protection, governance and instant settlement.

Polymesh's token has been launched on Binance, with the token named Polyx. Currently, both MC and FDV are 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 treasury bond field in the past, their products can also be adjusted according to compliance regulations to serve the tokenized scenario of stocks. Moreover, Ondo is very close to the Trump family, and may get more conveniences, either light or secretly, and even the Trump family members' stand (although the marginal impact of similar actions has become weaker and weaker).

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

Risks to be aware of

The reason why the title of this article uses "hidden but unpublished" to describe this wave of STO's narrative is that there are still many uncertainties in whether it can develop. Although judging from the various measures of this new SEC team (withdrawal of a large number of crypto litigation), its attitude towards STO is also inclined to be relaxed, it is still unknown when a clear compliance framework used to guide STO will be introduced and needs to be closely observed, which determines the speed at which companies such as Coinbase follow up and advance.

The latest observation event was the first roundtable held by the SEC Encryption Working Group on the 21st of this month. The roundtable itself was set to provide a clear regulatory framework. The theme of this first meeting was "Defining the Status of Securities: History and Future Paths". One of the agendas of the meeting was compliance path design.

What is more noteworthy is that one of the main speakers of this STO narrative comes from Paul Grewal, the chief legal officer of Coinbase.

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