According to Bernstein’s analysts, an upcoming wave of equity tokenization is imminent despite the recent controversy involving Robinhood and OpenAI. Regulatory tailwinds are anticipated to encourage this trend.
On June 30, Robinhood’s CEO Vlad Tenev, at an extravagant promotional event in Cannes, introduced the company’s tokenized stocks product. This included presenting EU customers with more than 200 U.S. public equities and interests in private firms such as OpenAI and SpaceX as tokens on Arbitrum. Alongside this, Robinhood launched a range of other crypto products like perpetual trading, staking, and its own Ethereum Layer 2 network.
Tenev described the OpenAI and SpaceX tokens as a “seed for something much bigger”, with the goal to bring more private companies into the tokenization movement. However, OpenAI rejected the action, stating it did not approve any token representing its stock. OpenAI, directed by Sam Altman, advised investors to examine official filings before purchasing these instruments.
Private equity tokenization often lacks essential rights like company consent and right of first refusal, as Robinhood observed. Despite the existing private market liquidity for firms like OpenAI and SpaceX, Bernstein analysts note a high demand for tokenizing less liquid private assets.
“We believe Robinhood garnered sufficient attention and marketing for the concept of tokenization, which was the primary purpose behind the product launch,” said Chhugani. “It will continue to refine the product as it strives to construct a marketplace for listed and unlisted equities – globally and in the U.S. when the regulatory framework is prepared.”
Robinhood is now among companies such as Bybit, Kraken, and Gate in offering tokenized shares to non-U.S. investors.
The analysts believe that supportive signals from SEC and regulatory clarity on equity tokenization will expand access for investors. They predict a more relaxed regulatory approach for private companies to bring liquidity to their equity through blockchain-based tokens. As the GENIUS Act related to stablecoins progresses, focus will shift to the CLARITY Act, which defines token securities vs. token commodities and lets platforms like Robinhood and Coinbase to trade both under CFTC and SEC supervision.
These developments suggest that equity tokenization is set to progress, irrespective of the current market structure and regulations.
Robinhood earlier this year made a case to the SEC that tokenizing real-world assets can enhance settlement, transparency, and cost-effectiveness. Robinhood called for clear, unified rules that treat tokenized and traditional assets equally. It also recommended that broker-dealers should be permitted to custody both, acknowledging tokens as “allowable assets”.
Gautam Chhugani, analyst at Bernstein, retains long positions in various cryptocurrencies. Certain affiliates of Bernstein act as market makers or liquidity providers in the equity securities of Robinhood and Coinbase.
Disclaimer: This article provides information for informational purposes only. It does not constitute legal, tax, investment, financial, or other advice.
