What Are Tokenized Stocks? A Guide to On-Chain Investing
Learn what tokenized stocks are and how they solve real-world problems for global investors, such as high fees, slow settlement, and limited access. Explore the benefits of 1-to-1 backing, fractional investing, and DeFi composability.
The Structural Barriers in Traditional Cross-Border Investing
For decades, accessing the world's most dynamic equity markets, particularly those in the United States, has been a complex and costly process for many investors. This is a structural reality built on layers of intermediaries, legacy technology, and jurisdictional friction. The current system for cross-border payments and settlements remains inefficient. A report on Project Agorá from the Bank for International Settlements (BIS) explicitly targets the structural issues that make cross-border payments slow, costly, and opaque, highlighting how tokenization can provide a foundational solution.
These are not abstract problems. They translate into concrete barriers for retail investors around the world:
- Prohibitive Costs: In many regions, the combined cost of funding an account and executing trades is a major obstacle. For example, research into the fee structures in Southeast Asia reveals multiple layers of cost. In the Philippines, total transaction costs to buy stocks can include a broker's commission, VAT, and exchange and clearing fees, as detailed by platforms like COL Financial. Similarly, trading on Bursa Malaysia involves brokerage fees, clearing fees, and stamp duty, with a full breakdown of transaction costs available from the exchange. In Indonesia, investors face broker commissions for buying and selling on top of exchange levies and taxes, with fee structures published by firms like Indo Premier Sekuritas. These costs, combined with international wire fees, can significantly erode returns.
- Slow Settlement Cycles: The US financial market recently upgraded to a T+1 settlement cycle, meaning trades officially settle one business day after they are made. While an improvement from the previous T+2 standard, it is still far from the near-instant finality common in the digital economy. This delay ties up capital and maintains counterparty risk for at least 24 hours.
- Restricted Access: Trading is often confined to specific market hours, a significant disadvantage for investors in different time zones. Furthermore, high minimum investment requirements and complex, document-heavy onboarding procedures at traditional brokerages can exclude millions of potential market participants entirely.
How Tokenization Provides a Direct Solution
Tokenization directly addresses these long-standing issues by representing a real-world asset, like a share of stock, as a unique digital token on a blockchain. On our platform, every token is backed 1-to-1 by a real share held in a segregated account at a regulated broker. This change fundamentally upgrades the infrastructure of investing.
- Direct and Open Access: With a wallet-based, permissionless onboarding process, we remove many traditional gatekeepers. You can connect your existing crypto wallet or create a new embedded wallet in seconds using an email or social login, giving you direct access to global markets from your device. We do not serve users in the United States or other restricted jurisdictions.
- Radical Fractionalization: High-priced stocks are no longer out of reach. Tokenization allows for ownership to be divided into very small fractions, down to six decimal places on our platform. This enables you to invest in any available asset with as little as $1, making it much easier to build a diversified portfolio without needing substantial upfront capital.
- Near-Instant Settlement: On-chain transactions offer a level of speed that traditional systems cannot match. While T+1 settlement still involves a 24-hour waiting period, trades on blockchains like Base and Arbitrum achieve finality in minutes or even seconds. This reduces settlement risk and means your capital is available to you almost immediately after a trade.
- Verifiable Transparency: A significant advance is the use of on-chain Proof of Reserves. Instead of relying on periodic paper statements, you can use a public block explorer to verify in real time that the number of tokens in circulation matches the underlying assets held in custody. Our Proof of Reserves page shows this data live, attested by a third-party provider that reads our brokers' balances directly.
Composability: Unlocking New Capabilities for Your Assets
Beyond solving problems of access and efficiency, tokenization unlocks a capability almost entirely unavailable to retail investors in traditional finance: composability. This means that assets built on a common technical standard, like the ERC-20 standard on Ethereum and compatible chains, can interact programmatically with a vast ecosystem of other financial applications, often called Decentralized Finance (DeFi).
This turns your static stock holdings into productive, dynamic assets. Your investment portfolio becomes a financial tool you can actively use. Here are a few concrete examples of what is possible:
- Lending and Borrowing: You can deposit your tokenized assets into a decentralized lending protocol like Aave or Morpho. The protocol's smart contracts recognize the token as valid collateral and allow you to borrow other assets, such as stablecoins, against its value. This is a secured loan that lets you access liquidity without selling your equity position, all governed by transparent, automated rules on the blockchain.
- Providing Liquidity: You can pair your tokenized stock, such as a token representing the SPY S&P 500 ETF, with a stablecoin like USDC in a liquidity pool on a decentralized exchange. By doing so, you facilitate trading for other users on that platform. In return for providing this liquidity, you can earn a portion of the trading fees generated by that pool, creating a potential yield on an asset you already hold.
- Enhanced Collateral for Trading: Many on-chain trading platforms, particularly those for derivatives like perpetual futures, are beginning to accept tokenized real-world assets as collateral. This allows you to use your equity holdings to back your trading positions, increasing your capital efficiency compared to only using stablecoins or volatile crypto assets.
Understanding Ownership: 1:1 Backing vs. Synthetic Exposure
A common and important question is what you actually own when you hold a tokenized stock. It is crucial to distinguish between different models. Some products may only offer synthetic exposure through a derivative, which carries significant counterparty risk. This distinction is critical, as financial regulators like the European Securities and Markets Authority (ESMA) have issued public statements warning that some instruments can mislead investors by creating a "false sense of ownership" if they do not provide clear rights to an underlying asset.
Our model is built on direct, 1-to-1 backing. For every tokenized stock we issue, a corresponding, real share is purchased and held in a segregated customer account at a regulated, third-party broker-dealer, such as Interactive Brokers or Alpaca Markets. This structure ensures that the tokens have a direct claim on the underlying assets. In the event GM Markets ceases to operate, a designated security agent can work with the custodian to redeem tokens for the underlying shares. This process is enforced by the on-chain smart contract, independent of our company.
Security extends to your account as well. Our platform uses embedded wallets from Privy, which are protected by Multi-Party Computation (MPC). This technology splits the private key into shares, so no single party, not even GM Markets, has complete control over your funds. This provides a high level of account security without the user needing to manage complex seed phrases.
The Future is On-Chain: Market Growth and Your Portfolio
The tokenization of financial assets is a present-day reality that offers practical solutions to the friction that has defined cross-border investing for decades. Major institutions recognize this potential. A widely cited report by Boston Consulting Group (BCG) and ADDX projects that the market for tokenized assets could become a $16.1 trillion business opportunity by 2030.
For individual investors, the benefits are clear and immediate: greater access to global markets, lower costs, improved capital efficiency through near-instant settlement, and the transformative potential of DeFi composability. It represents an evolution in how we own and interact with financial assets.
We invite you to explore the tokenized stocks and ETFs available on our platform. As with any investment, it is important to understand the risks. The value of your assets can go down as well as up, and you may lose money. Tokenized assets carry risks including smart contract vulnerabilities, counterparty risk, and settlement risk. For more information, please review our legal and risk disclosures.
Frequently Asked Questions
What are tokenized stocks?
Tokenized stocks are digital representations of real, publicly traded shares that exist on a blockchain. On GM Markets, each token is fully backed 1-to-1 by an actual share held at a regulated broker, giving the token holder economic exposure to the underlying asset's price movements and dividends.
Are tokenized stocks safe?
Safety depends on the specific platform's structure. At GM Markets, we prioritize security through several layers: 1-to-1 asset backing with regulated custodians, real-time on-chain Proof of Reserves, and non-custodial MPC wallets. Our smart contracts are also audited by leading security firms. However, all investments and on-chain activities carry inherent risks.
Do I own the actual stock with voting rights?
When you hold a tokenized stock on our platform, you have economic exposure to the asset, meaning you benefit from price appreciation and dividends (which are reinvested to increase the token's value). You do not, however, receive the shareholder voting rights that come with holding the share directly at a traditional broker.
What are the main benefits for a small investor?
The key benefits are access and efficiency. You can invest in high-priced US stocks from anywhere (outside of restricted jurisdictions) with as little as $1 due to fractionalization. You also benefit from lower fees compared to many traditional cross-border options and near-instant settlement, which means your money is not tied up for days.
