Stock Tokenization: Investment and Arbitrage Opportunities in Emerging Markets

1. Introduction

Recently, stock tokenization has become a market hotspot, attracting widespread attention. This article will delve into the underlying principles of stock tokenization, analyze current arbitrage and investment opportunities in the market, and provide a detailed introduction to different types of arbitrage logic, operational processes, and their limitations, to help investors better seize market opportunities. At the same time, we will also focus on the opportunities for individual investors in this trend, such as fragmented trading and diversified asset allocation as new avenues. Although stock tokenization has brought many opportunities, there are still challenges in technical implementation and price anchoring, and investors need to maintain rational judgment.

2. The Implementation Mechanism of Stock Tokenization

2.1 Definition

Stock tokenization is the process of converting traditional company stocks into tokens on the blockchain through smart contracts and custodial mechanisms, allowing them to be held, traded, and combined on-chain. This is essentially a derivative of traditional stocks and does not represent direct ownership of the stocks; therefore, the value and risk of stock tokens are closely related to the underlying stocks.

2.2 Mainstream Implementation Path

Currently, there are three main implementation structures for stock tokenization:

1. Third-party Custody + Exchange Integration: The regulatory company confirms the holding of real company stocks, and after dual verification by the oracle, issues tokens at a 1:1 ratio. The exchange is responsible for front-end display, user transactions, and transaction matching. This structure has high transparency and deeply anchors the price through the staking of real stocks.

2. Licensed Brokers + Proprietary Links: Providing a complete issuance, settlement, and self-custody cycle on a proprietary blockchain, ensuring high compliance, but with higher technical and legal complexity.

3. Contract for Difference (CFD) Structure: Users trade contracts linked to stock prices, rather than actual "mapped assets". Users cannot obtain real shareholding rights or dividends. These products are usually priced and market-made by the platform itself, lacking underlying asset support, and face a significant risk of decoupling.

3. Arbitrage Opportunities in Stock Tokenization

Currently, stock tokens issued by third-party custodians are the most common. These tokens are priced based on the underlying real stocks, which have strong anchoring properties and relatively low investment risks.

As of July 9, 2025, the total market capitalization of stock tokens is $422 million, whereas the market capitalization of just NVIDIA's stock reaches $3.9 trillion. This indicates that the liquidity of the stock token market is still severely lacking compared to the traditional stock market.

Insufficient liquidity combined with time differences in trading leads to certain deviations in the token prices compared to the corresponding stock prices across different platforms and time periods, thereby creating arbitrage opportunities. Below are three classic arbitrage strategies applied in stock tokens.

3.1 Hedging Arbitrage between Spot Market and Token Market

Arbitrage Principle

When the token exchange and the stock market open at the same time, if the token price is significantly higher than the spot stock price, arbitrageurs can buy the spot stock while shorting the corresponding stock token in the token market. If the price returns subsequently, the arbitrageurs can close their positions by selling the spot and buying back the token, earning the price difference. The reverse is also true.

Arbitrage operation process

For example, at a certain point in time on July 9, 2025: the spot stock price of Nvidia (NVDA) is $160.00; at the same time, the corresponding stock Token NVDAX is quoted at $160.40.

When a positive price difference of $0.40 appears, arbitrageurs can perform the following operations:

1. Buy NVDA spot stock
2. Short sell NVDAX stock Token on the token trading platform
3. Continuously monitor the price trends and order book depth of the two markets.
4. When the prices of the two markets revert and approach $158.00:
   • Buy spot stocks before selling in the traditional market
   • Place a market order to open a position in tokenization to cover the short position and complete the hedging.
5. Each share completes a risk-free arbitrage, with profits coming from the initial price difference, still yielding $0.22 after deducting fees.

Arbitrage conditions

Hedging arbitrage is highly sensitive to slippage and fees, requiring quick identification of buy and sell signals for execution. It is suitable for quantitative institutions with high-frequency trading capabilities that can secure lower fees.

3.2 Arbitrage of price differences of the same stock Token between different exchanges

Arbitrage Principle

Arbitrage across exchanges involves buying tokens on a trading platform where prices are low and withdrawing them to sell on a platform where prices are high. If the price difference between different exchanges is large enough to cover fees and still yield a profit, the operation can be executed.

Arbitrage operation process

Assuming the price of a certain Token on Exchange A is 100 USDT, and the price on Exchange B is 103 USDT.

Arbitrageurs can buy tokens on Exchange A, then transfer them to Exchange B and sell them for around 103 USDT, completing the arbitrage. After deducting the buying fees, withdrawal fees, and selling fees, there is still a profit.

Arbitrage conditions

Such arbitrage is constrained by factors such as on-chain transfer speed, withdrawal limits, exchange deposit times, and trading pair depth. If on-chain transfers are involved, network congestion and delays must be considered. Arbitrageurs often need to utilize pre-stored liquidity, quantitative trading, and multi-account collaboration to achieve "risk-free arbitrage."

3.3 Arbitrage

Arbitrage

Traditional stock settlement typically involves a delay of T+2 or longer, while the trading and settlement of tokenized stocks are based on blockchain, theoretically allowing for settlement in minutes or even seconds. Arbitrageurs can take advantage of the settlement time difference to arbitrage using the instant price adjustments in the token market before the traditional stock settlement is completed.

For example, the traditional market opens from Monday to Friday from 09:30 to 16:00, while the cryptocurrency market operates 24/7 without interruption. This means that during non-trading hours, such as weekends and pre-market or after-hours, the prices of stock tokens may experience significant fluctuations driven by news events, while the actual stock prices have not yet adjusted, providing a brief arbitrage window.

Arbitrage operation process

1. Deploy a monitoring system or rely on news sources to capture significant news during non-trading hours.
2. Analyze the impact direction and magnitude of the message on related stocks.
3. Buy or short related stock tokens on the token platform based on your judgment.
4. Wait for the spot market to open before closing the position:
   • If the actual stock price moves in the direction of arbitrage, then position will be closed at an opportune time after the spot market opens.
   • Or wait for the token price to revert and close positions in the token market when it aligns with the spot price to capture the price difference.

Arbitrage conditions

Arbitrage opportunities of this kind often last only a few minutes or even a few seconds, requiring a high-performance news delivery system and automated trading response. Additionally, attention must be paid to the accuracy of the news sources to avoid misjudging investment directions due to false news.

4. Opportunities for Individual Investors

Although arbitrage strategies require high technical skills, capital, and speed of information acquisition from investors, there are also opportunities suitable for individual investors in the wave of stock tokenization.

4.1 Purchase Fragmented Stocks

After the tokenization of stocks, investors can purchase smaller units of stocks, such as 0.1 shares or even 0.001 shares. This significantly lowers the investment threshold, allowing investors to participate in high-priced stock investments with smaller amounts of capital.

4.2 Multi-Asset Allocation

The 24/7 trading system allows users to trade at any time without being restricted by opening hours, facilitating diversified asset allocation and helping to mitigate regional financial risks.

4.3 lower trading costs

Trading tokenized stocks through decentralized trading platforms can significantly reduce transaction costs. For example, traditional stock brokers usually charge transaction fees between 0.1% and 0.5%, while some token trading platforms have fees as low as 0.025% to 0.1%.

5. Risks and Challenges

Although stock tokenization arbitrage provides investors with new trading opportunities, there are also many risks:

• The risk of price deviation continuing to widen
• Slippage risk
• Delay risk
• Transaction fees erode profits

In addition, stock token trading faces some unique systemic risks:

• Oracle and Price Decoupling Risk: If the oracle experiences failures, delays, or attacks, it may lead to severe fluctuations in Token prices or permanent decoupling.
• Legal Challenges: In most jurisdictions, the legal status of stock tokens is still unclear, potentially involving risks such as unregistered securities trading and cross-border movement of foreign assets.

6. Conclusion

Stock tokenization represents an important trend for the crypto market's penetration into "real-world assets" (RWA), providing new opportunities for both professional and individual investors. Investors can choose different investment strategies based on their own characteristics. However, it is important to note that stock tokens also face systemic risks such as price decoupling and legal challenges, and investors need to closely monitor the safety of the underlying assets and maintain rational judgment.