Tokenizing stocks of DATs compounds investor risk: Crypto execs
News Summary
Several crypto industry executives warn that Digital Asset Treasury (DAT) companies tokenizing their stocks on the blockchain significantly increases risks for investors and their own businesses. Key concerns include the 24/7 nature of blockchain trading compared to traditional market hours, which could lead to sharp price movements and runs on stock without sufficient time for companies to react. Risks are further compounded by potential smart contract exploits and hacking vulnerabilities affecting both underlying funds and tokenized shares. Executives highlight that tokenizing DAT equity creates a "synthetic on top of a synthetic," exposing investors to the volatility of crypto assets and the complexities of corporate equity, governance, and securities law simultaneously. Despite these warnings, tokenized stocks are gaining popularity, and the U.S. SEC is actively exploring 24/7 capital markets to modernize the legacy trading system. Traditional exchanges like Nasdaq and NYSE are also pushing for expanded trading hours, with Nasdaq planning 24/5 trading by the second half of 2026, though a lack of legal clarity leaves tokenized stocks in a regulatory grey zone.
Background
Digital Asset Treasury (DAT) companies manage significant holdings of cryptocurrencies and other digital assets, aiming to provide investors with exposure to the digital asset space. Stock tokenization involves issuing digital tokens representing a company's traditional shares on a blockchain, enabling faster trading, fractional ownership, and broader market access. In 2025, the U.S. administration under President Donald J. Trump continues to explore the potential of blockchain technology in financial markets and promote financial innovation, while balancing the need for regulation. The U.S. Securities and Exchange Commission (SEC) is also considering regulation for blockchain-based stock trading and exploring a 24/7 capital markets model, in contrast to traditional markets. Traditional stock exchanges, including Nasdaq, have announced plans to extend trading hours to keep pace with the round-the-clock crypto markets.
In-Depth AI Insights
What are the true drivers behind stock tokenization, beyond superficial efficiency gains? - On the surface, tokenized stocks aim to enhance traditional market efficiency, settlement speed, and accessibility. However, deeper drivers involve crypto-native companies seeking to leverage blockchain's liquidity, transparency advantages, and bypass certain friction points and costs present in the traditional financial system. - For regulators and traditional exchanges, pushing for 24/7 trading and tokenized stocks reflects a response to competitive pressures from crypto markets, particularly DeFi. They are attempting to integrate crypto innovations into a regulated framework to prevent capital and liquidity from migrating entirely to unregulated platforms, while maintaining their position as primary financial infrastructure providers. This also caters to a younger generation of investors seeking higher volatility and potential returns. Why are crypto industry insiders expressing such strong concerns about DAT stock tokenization? - The root of the concern lies in the layering and compounding of risks. When a DAT company tokenizes its stock, investors face not only the traditional equity risks of the company's operations but also the volatility of underlying crypto assets, alongside smart contract vulnerabilities and blockchain-specific security risks. Essentially, it adds an unproven, regulatory-unclear layer of innovation on top of an already volatile asset class. - Furthermore, the mismatch between 24/7 trading and traditional market hours poses significant operational challenges for companies to manage their stock price and respond to negative news or technical glitches. If legal clarity remains absent, these compounded risks could rapidly amplify under market stress, leading to devastating outcomes for investors. What are the long-term strategic intentions of U.S. regulators and traditional exchanges in pushing for 24/7 trading and tokenized stocks? - The long-term strategic intention of U.S. regulators and traditional exchanges is to integrate aspects of crypto finance into the regulated ecosystem without disrupting the existing financial order. This is a "if you can't beat them, join them" strategy, aiming to attract crypto market liquidity and users by offering similar services. - The goal is to solidify U.S. leadership in global financial innovation, ensure the U.S. dollar's dominance in the digital asset economy, and lay groundwork for broader digital asset and blockchain applications in the future. However, this integration must occur within legal and regulatory frameworks to maintain investor protection and market stability, which is the biggest challenge. This move could also further bolster the global competitiveness of U.S. financial markets, attracting more capital.