Tokenized Stocks Face a Liquidity Test

Tokenized stocks are often sold as a cleaner way to trade public equities: faster settlement, fractional access, lower costs, and potentially near 24/7 markets. That upside is real. But the more important debate is no longer whether a stock can be represented onchain. It is whether the market around that representation remains efficient, liquid, and trustworthy.

According to Cointelegraph’s report on research from Tiger Research, the US Securities and Exchange Commission’s possible “innovation exemption” for tokenized stocks could introduce two major structural risks: liquidity fragmentation and revenue fragmentation. The exemption, as described in the report, could allow third-party exchanges to list tokenized stocks without approval from the original stock issuer, though the final scope has not been settled.

That uncertainty matters. Tokenized equities are not just a blockchain product story. They are a market-structure story. If the same public equity can trade through multiple tokenized versions across multiple chains, brokerages, offshore venues, and decentralized platforms, the core question becomes: where does the real market live?

Tokenized stocks are moving beyond the product pitch#

The basic case for tokenized stocks is easy to understand. A token can represent economic exposure to a public equity, making it possible to trade smaller fractions, settle faster, and reach users who may not have direct access to traditional US brokerage infrastructure.

For global investors, that is compelling. Many high-demand US equities remain difficult to access in some regions due to local brokerage restrictions, account requirements, capital controls, or limited market infrastructure. Tokenization could make access simpler and more programmable.

But access is not the same as market quality.

A market can be easy to enter and still be expensive to trade. It can be open around the clock and still have poor depth. It can show a price on a screen and still fail to track the underlying asset cleanly under stress.

That is the distinction investors need to make. Tokenized stocks may improve distribution, but distribution does not automatically solve liquidity, custody, redemption, pricing, surveillance, or investor protection. In fact, broad distribution can make those problems harder if too many disconnected venues list their own versions of the same equity.

The main risk: liquidity stops living in one place#

Tiger Research director and head of research Ryan Yoon identified liquidity fragmentation as a central concern. In today’s equity market structure, trading volume and order flow are concentrated around major exchanges, broker-dealers, market makers, clearing systems, and regulated intermediaries. The system is complex, but it is built around deep pools of liquidity and established price-discovery channels.

Tokenization can break that concentration.

If multiple third parties tokenize the same listed stock across different blockchains and trading platforms, investor demand may spread across many small pools instead of gathering in one deep market. That may look like competition, but it can also create weaker execution.

The likely outcomes are familiar to anyone who has traded fragmented crypto markets:

• price discrepancies between venues;
• higher slippage on larger orders;
• wider spreads in thin pools;
• delayed or constrained arbitrage;
• weaker price discovery during volatile periods.

Crypto already demonstrates this pattern. The same asset can trade at different prices across centralized exchanges, decentralized exchanges, bridged versions, wrapped versions, and regional platforms. When liquidity is deep and arbitrage is fast, those gaps may be small. When liquidity is thin, bridges are slow, or market makers pull back, gaps can widen quickly.

Tokenized stocks bring that behavior into assets investors expect to closely track regulated public equities. That expectation is crucial. A tokenized share of a major company is not supposed to feel like an obscure altcoin pair with shallow liquidity. Investors expect the token to behave like exposure to the underlying stock.

If it does not, the product becomes something else: a venue-specific instrument with its own liquidity risk.

Revenue fragmentation is the second-order fight#

The second risk highlighted in the Cointelegraph report is revenue fragmentation. This is less visible to retail investors, but it matters for market structure.

If trading in tokenized stocks shifts away from domestic exchanges and incumbent infrastructure, revenue linked to equity trading may move to offshore platforms, crypto-native venues, or nontraditional intermediaries. Yoon framed this as an issue of national financial competitiveness, not only exchange profitability.

That framing is important. Equity markets are not just apps and tickers. They are ecosystems of exchanges, brokers, clearing firms, custodians, data providers, surveillance systems, market makers, regulators, and listed companies. Revenue from trading activity supports parts of that ecosystem.

If tokenized versions of equities capture order flow without carrying equivalent obligations, the economics of the market can shift. That does not automatically mean tokenized stocks are harmful. It means regulators need to decide whether new venues should be allowed to compete for equity trading activity, and under what rules.

This is where the “innovation exemption” debate becomes serious. An exemption could encourage experimentation and faster deployment. But if the exemption lets many third-party venues list tokenized equities without a consistent framework for backing, disclosure, surveillance, redemption, and price alignment, the market may grow before its safeguards are mature.

The issue is not whether blockchain can represent a share. The issue is how many representations can exist, who maintains them, how they stay aligned, and who is responsible when they do not.

The investor risk: tracking error in disconnected pools#

Cointelegraph also cited Maja Vujinovic, CEO of digital assets at FG Nexus, who warned that markets could split into “disconnected pools.” That is the practical retail-facing version of the liquidity problem.

For an investor, the promise of a tokenized stock is simple: exposure to the underlying equity. But if the token trades in a shallow pool, its price can reflect local liquidity more than the actual stock price.

That creates tracking error.

A token can be technically linked to a stock and still trade poorly in practice. If there are not enough buyers and sellers on a specific venue, a relatively small order can move the token price away from the underlying equity. If arbitrage is slow, expensive, restricted, or unclear, the gap may persist longer than investors expect.

This risk becomes more important in three conditions:

1. Large orders#

A small investor may not notice weak depth when buying a tiny amount. A larger order can expose the problem immediately. Thin books create slippage, and slippage is a real cost.

2. Market stress#

During volatility, liquidity often disappears exactly when investors need it most. If tokenized stock venues depend on market makers, bridges, or external hedging channels, stress can widen spreads and reduce execution quality.

3. After-hours trading#

Round-the-clock access sounds attractive, but it can be misleading. If the underlying stock’s primary market is closed, the token price may be based on expectations, futures, related markets, or thin local activity. That can create unstable pricing.

The source report notes that real-world asset open interest reached an all-time high of $2.6 billion this week, while tokenized stocks account for only 4.4% of total real-world asset onchain value. That combination says a lot: the broader RWA category is growing, but tokenized equities remain a small and early segment.

Early markets can scale quickly. They can also reveal structural weaknesses quickly.

The SEC signal is not the same as a final framework#

The Cointelegraph report says Tiger Research’s analysis followed the SEC’s introduction of an “innovation exemption.” The article describes the exemption as allowing third-party exchanges to list tokenized stocks without issuer approval.

However, the final boundaries remain critical.

SEC Commissioner Hester Peirce said any exemption would be “limited in scope” and would only permit “digital representations of same underlying equity security that investor could purchase in secondary market today.” That is a narrow description. It suggests the SEC is not discussing a free-for-all for synthetic equity-like products, but digital representations of existing public securities.

Still, the operational details are where the real rules will live. Investors and builders should watch for answers to several questions:

• Who holds the underlying shares or economic backing?
• Does the investor have redemption rights, or only secondary-market exposure?
• What disclosures are required from token issuers and venues?
• How is market manipulation monitored across chains and platforms?
• What happens if a token trades away from the underlying stock price?
• Are venues required to maintain minimum liquidity standards?
• How are after-hours prices calculated and communicated?
• What protections apply if a platform fails?

Until those questions are answered, tokenized stocks should be treated as an evolving structure, not a finished replacement for traditional equity access.

Practical takeaways for investors and builders#

The cleanest way to analyze tokenized stocks is to separate access from execution.

Access answers the question: can more people buy exposure to an equity?

Execution answers the harder question: can they buy and sell that exposure at fair prices, with reliable liquidity, clear rights, and strong protections?

Before using or building around tokenized equities, consider these checks:

• Liquidity depth: Look beyond headline volume. Check order-book depth, spreads, and slippage for realistic trade sizes.
• Backing model: Understand whether the token is fully backed, synthetically linked, or dependent on an intermediary.
• Redemption rights: Determine whether holders can redeem for underlying shares or cash, or whether they rely entirely on secondary-market buyers.
• Venue quality: Assess where the token trades, who supervises the venue, and what compliance standards apply.
• Price tracking: Compare token prices against the underlying equity during normal hours, after hours, and volatile sessions.
• Fragmentation risk: Avoid assuming that all tokenized versions of the same stock are equivalent. Different venues can carry different liquidity and counterparty risks.
• Regulatory status: Watch the SEC’s final scope before treating any model as settled.

For builders, the message is equally direct: tokenized stocks will not win only because they are onchain. They will win if they deliver better access without degrading market quality.

Conclusion: the real debate is market quality#

Tokenized stocks may become a meaningful upgrade to equity access. Faster settlement, fractional ownership, lower transaction costs, and global reach are valuable goals. A well-designed system could make public market exposure more efficient and more inclusive.

But the unresolved risk is fragmentation.

If the same stock trades through many disconnected tokenized versions, liquidity can scatter, prices can diverge, and revenue can shift away from the infrastructure that supports public markets. In that world, investors may get easier access but worse execution.

That is why the SEC’s final approach matters. The key question is not simply whether tokenized stocks should exist. It is what obligations should apply when traditional equities move onto new rails.

Tokenization can improve markets. It can also split them. The difference will come down to liquidity design, regulatory clarity, and whether tokenized stock platforms can prove they are more than another venue chasing order flow.