Tokenized stocks, such as the new xStocks by Kraken and Backed Finance, allow users to trade traditional stocks on a blockchain, facilitating instant settlement, direct dividend payments, and a legal claim on the underlying asset. However, only qualified non-US investors can mint and redeem these stocks due to KYC regulations and the structure of the underlying special purpose vehicle in Liechtenstein. The trading dynamics present challenges, as traditional stocks trade during specific hours while tokenized variants trade 24/7, which can lead to liquidity issues and price discrepancies. For instance, if Tesla shares finish Friday at $300 but the tokenized version trades at $290 over the weekend, price alignment only occurs post-market hours when the tokens can be redeemed for shares. This lack of liquidity can result in unfavorable trading conditions, particularly for larger transactions, although equities are generally less volatile than cryptocurrencies. Alternatives like synthetic perps on platforms like Ostium may offer better execution for significant trades, though without some benefits of tokenized stocks. Upcoming developments with firms like Robinhood could impact composability and liquidity in this space.

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