What are the limitations of stock tokens? In-depth analysis of the five core shortcomings of tokenized stocks.

In 2026, tokenized stocks are moving from the fringes of the crypto industry to the mainstream at an unprecedented pace. According to QYResearch, the global stock tokenization market was approximately $1.35 billion in 2025 and is expected to reach $2.58B by 2032. The cumulative trading volume of Gate's stock token section has also exceeded hundreds of billions of dollars, showing rapid growth.

However, behind the attractive narratives of "24/7 trading" and "low-barrier access to US stocks," the real face of tokenized stocks is far more complex than advertised. A stock token is essentially an on-chain derivative asset linked to stock prices, not an actual share issued by the company. This means that while investors enjoy certain conveniences, they must also face a series of structural limitations and risks.

Global Uncertainty in Regulatory Policies

The primary limitation facing stock tokens comes from the fragmentation and uncertainty of global regulatory frameworks.

Stock trading is subject to clear and strict regulation in countries around the world, with almost no gray areas. When stocks enter the blockchain network in token form, their legal nature opens up new room for interpretation: some jurisdictions classify them as digital securities subject to securities laws, while others have not yet established a clear regulatory framework.

This lack of uniformity in regulatory standards directly affects the cross-border circulation and trading activity of tokenized stocks. Compliance costs rise for investors and institutional participants, and the cross-regional activities of liquidity market makers are restricted. More alarmingly, if regulation tightens, a large number of tokenized stock products may face delisting or even removal from the market.

The International Monetary Fund (IMF) has already warned that unregulated 24/7 trading could amplify financial contagion risks. The World Federation of Exchanges (WFE) has also called on regulators to strengthen oversight of tokenized stocks, pointing out serious issues such as regulatory arbitrage, lack of transparency, and impaired investor rights.

For domestic investors, the risks are even more pronounced. Any platform that claims to allow "buying US stock tokens directly with RMB without a US stock account" is highly likely to be involved in illegal cross-border stock trading or illegal fundraising. If disputes arise from participating in such on-chain transactions not approved by domestic regulators, it will be difficult for the law to protect investors' rights.

Substantive Lack of Shareholder Rights

This is the most easily overlooked but also the most fundamental limitation of stock tokens.

Holding a stock token does not equal holding a stock. Gate's official documentation clearly states: Stock tokens are on-chain derivative assets; holders do not enjoy shareholder voting rights, dividend rights, or any right to participate in corporate governance. Stock tokens do not generate dividends.

When a traditional stock investor buys shares in a company, they become a shareholder—with legal rights such as direct claims on the company's assets, voting rights, and participation in dividends. In contrast, holders of stock tokens only receive an on-chain IOU (I Owe You), which entitles the holder to redeem the monetary value represented by the underlying stock.

The gap between the two is fundamental. Buying stocks means buying a company's future; buying tokens means buying the platform's ability to perform. The risk levels are worlds apart.

The European Securities and Markets Authority (ESMA) points out that tokenized stocks may lead to investor misunderstanding, as tokenization typically does not make the buyer a shareholder of the underlying asset. Regulators warn that blockchain-based stock tokens may lead investors to mistakenly believe they are shareholders of the underlying company, exposing them to potential risks.

Severe Lack of Liquidity Depth

Tokenized stocks are marketed as being tradable 24/7, but "tradable" does not mean "liquid."

Currently, the monthly trading volume of tokenized public stocks has exceeded $800 million, touching $1 billion in some months. However, compared to the traditional stock market with daily trading volumes often in the hundreds of billions of dollars, the gap is enormous.

The direct consequence of insufficient liquidity is high slippage. Some analyses indicate that the slippage displayed on the front end for some tokenized stocks is only 0.03%, but actual on-chain liquidity is extremely limited, and real slippage could be as high as 45%. The underlying logic is that liquidity is mainly provided by off-chain market makers during US stock trading hours, leaving a liquidity vacuum after hours.

Tokenized stocks appear to enable round-the-clock trading, but the true picture of liquidity is deeply constrained by traditional market hours. In essence, they still follow the rhythm of traditional finance, just with an additional on-chain shell.

The root cause of insufficient liquidity lies in structural deficiencies:

• High minting barriers: On-chain issuance of tokenized assets requires pre-locking the underlying assets, involving multiple legal and custody processes, with costs far higher than native crypto assets.
• Long redemption cycles: Redeeming on-chain tokens back to fiat or physical assets typically takes 1 to 5 business days, preventing quick capital exits.
• Low market maker willingness: Due to cumbersome redemption mechanisms and low capital efficiency, market makers prefer to allocate funds to more liquid crypto markets.

These structural deficiencies trap the tokenized asset market in a vicious cycle of "insufficient liquidity → reduced participation → even less liquidity." When market depth is inadequate, investors cannot build scaled positions; when exits are unreliable, assets struggle to qualify as collateral for on-chain lending systems.

Additionally, the proliferation of various tokenized equity standards from different issuers causes adverse market fragmentation, harming end consumers. Liquidity may be dispersed across different blockchains, centralized and decentralized trading venues, further compressing effective market depth.

Fragility of the Custody Chain and Counterparty Risk

One of the core values of the cryptocurrency industry is "trustlessness"—users hold assets via private keys without relying on any third party. But stock tokens completely deviate from this principle.

Holders of stock tokens are entirely dependent on the solvency of a central custodian to redeem their monetary value claims. Most tokenized stocks adopt a structure of "real stock custody + on-chain token issuance": the underlying stocks are held by a professional custodian, while investors hold corresponding digital certificates.

This structure introduces multiple risks:

First, custodian bankruptcy risk. If the custodian holding the real stocks suddenly goes bankrupt, investors' investments may vanish. This is not a hypothetical concern but a real systemic risk.

Second, platform collapse risk. If the platform that issued the tokenized stock collapses, investors are creditors, not owners. Claims are made against the tokenization issuer's consolidated pool of funds. Most such platforms do not have SIPC (Securities Investor Protection Corporation) insurance.

Third, redemption restrictions. Tokenized stocks can only be redeemed by investors who are registered with the issuer, and residents of "prohibited jurisdictions" cannot access this feature. The definition of such jurisdictions varies by issuer and may change overnight due to legal changes.

In addition to bearing the native risks of the crypto industry—smart contract risks, liquidity risks—investors must also bear risks introduced by the issuer and asset custodian. This precisely reintroduces the counterparty risk that blockchain was supposed to eliminate.

Structural Challenges at the Technical Level

Stock tokens also face numerous difficult technical barriers.

First, the complexity of corporate actions. During stock holding, various events constantly occur—dividends, voting, stock splits, additional issuances, etc. Each change must be legally valid and accurately reflected in the shareholder register. Issuing a stock token is not a "one-and-done" process; one must be responsible for its entire lifecycle.

Take stock splits and reverse splits as an example: after a stock token is issued, if the underlying stock undergoes complex operations like splits, smart contracts have difficulty automatically handling the corresponding token adjustments. If the oracle operates improperly, it could trigger user liquidations in perpetual contracts, lending, and other trading products.

Second, oracle dependency risk. The pricing of tokenized stocks requires real-time mapping of underlying stock prices. Fluctuations in on-chain/off-chain price spreads, oracle data delays, and uncertainty in cross-market arbitrage all increase market makers' risk exposure. Oracle failures, insufficient collateral, and systemic liquidations during extreme market conditions are major risk sources for synthetic asset models.

Third, cross-chain fragmentation. Early experiments with tokenized stock collateral markets are already taking place across different ecosystems, increasing the risk that depth, pricing, and oracle infrastructure may become fragmented before reaching critical mass in standardization and interoperability.

Fourth, no circuit breakers. Traditional stock markets have circuit breakers to prevent panic stampedes. If the underlying stock experiences significant bad news over the weekend, the traditional market suspends trading to allow calm, but the on-chain market has no pause button—assets could evaporate in an instant while investors sleep, with no recourse.

Summary

As a product intersecting crypto assets and traditional finance, stock tokens indeed offer conveniences like 24/7 trading, low-barrier participation, and instant settlement. However, these conveniences come at the cost of a series of deep-seated structural limitations.

From a regulatory perspective, the fragmentation of global frameworks exposes tokenized stocks to ever-changing compliance risks; from a rights perspective, holders cannot obtain the voting rights, dividend rights, and other legal entitlements that traditional shareholders enjoy; from a liquidity perspective, the market size dwarfs the traditional stock market, making high slippage and liquidity traps the norm; from a custody perspective, investors must rely on the solvency of centralized institutions, reintroducing the counterparty risk that blockchain was supposed to eliminate; from a technical perspective, issues such as stock splits, oracle dependencies, and the absence of circuit breakers have yet to be effectively resolved.

Tokenization is an innovation at the infrastructure level, not a new asset class. It changes the settlement mechanism but does not alter the risk-return profile. Before choosing stock tokens, investors must clearly recognize: convenience comes at a cost, liquidity is conditional, and rights have boundaries.

Frequently Asked Questions (FAQ)

Q: What is the core difference between a stock token and a real stock?

A stock token is an on-chain derivative asset linked to the stock price but does not represent actual equity. Holding a stock token does not grant shareholder voting rights, dividend rights, or participation in corporate governance. A real stock gives the holder full shareholder rights.

Q: Why is the liquidity of stock tokens inferior to that of traditional stocks?

The market size of tokenized stocks is far smaller than the traditional stock market—traditional stock daily trading volumes are in the hundreds of billions of dollars, while tokenized stock monthly volumes are only in the hundreds of millions to a few billion dollars. Additionally, market makers lack willingness to participate due to cumbersome redemption mechanisms and low capital efficiency, resulting in severely insufficient market depth.

Q: What does the custody risk of stock tokens specifically refer to?

Stock tokens adopt a "real stock custody + on-chain token issuance" structure. Investors are entirely dependent on the custodian's solvency. If the custodian or issuing platform goes bankrupt, investors may face asset losses, and most platforms do not provide SIPC insurance.

Q: How do regulatory policies affect stock tokens?

Global regulatory standards are not uniform; some jurisdictions treat them as digital securities, while others lack clear frameworks. Regulatory tightening could lead to product delisting or removal. For domestic investors, participating in unapproved on-chain transactions may carry legal risks.

Q: What technical challenges do stock tokens face?

Mainly: corporate actions such as stock splits and reverse splits of the underlying stock are difficult to handle automatically via smart contracts; oracle data delays can trigger systemic liquidations; and the on-chain market lacks circuit breakers, offering no protection during extreme market conditions.