Disclaimer: I am not a lawyer, and nothing in this post should be taken as legal advice. What follows is my interpretation after reviewing the official documentation of each product, both manually and with the assistance of AI tools. In the interest of transparency, I should also note that I previously worked at Backed, one of the companies discussed here. The views expressed are solely my own.
In my last post “The mechanics of a tokenization engine”, I argued that the legal wrapper is the most important yet least appreciated component of any tokenization engine. The technology may decide how tokens are issued and transferred, but the wrapper decides what they actually are in the eyes of the law.
This distinction matters because it defines the rights and remedies of token holders. Do they have shareholder rights, cash-settlement rights, or no enforceable rights at all? Can they redeem into the underlying, or are they simply speculating on price feeds? And crucially: if something goes wrong, which court will enforce their claim, and under which law?
To unpack these questions, I decided to compare three different approaches to tokenization: Backed’s xStocks, Robinhood’s stock tokens, and Securitize’s security tokens. The first two are wrappers around existing assets, designed to give investors synthetic exposure. The third is different: Securitize is a native tokenization platform, issuing securities directly on-chain through a regulated broker-dealer and transfer agent stack, which I selected as a benchmark to see what native tokenization looks like when tokens are issued as securities from day one
By holding them side by side, the goal is to understand different pathways taken and evaluate if the same commercial proposition promise — “a security on-chain” — actually translates into the same legal reality.
xStocks (Backed Assets)
Backed’s xStocks are probably the cleanest example of how a traditional financial wrapper can be ported into tokenized form. At their core, these are Swiss tracker certificates — structured notes that follow the performance of a listed stock or ETF. Legally, each xStock is issued under a base prospectus approved by the Liechtenstein regulator, with specific terms published for every instrument. The token itself — an ERC-20 or SPL — is simply a digital bearer form of that certificate.
What this means in practice is that an investor in an xStock does not own the underlying share. Instead, they hold a secured contractual claim against the issuer, Backed Assets (JE) Limited, whose obligation is to pay the cash value linked to the reference security.
The setup is lean: assets are custodied with Swiss/US banks and a Swiss Security Agent is appointed to protect investors in case of default. But the key risk remains the same as with any structured product — investors are exposed to issuer solvency, not just the market risk of the underlying stock.
In other words, xStocks give token holders synthetic exposure to equities via a well-established legal format, with the benefit of transferability on public blockchains. They are enforceable under Jersey law, while the registration and ledgering is governed by Swiss law. These tokens come with a prospectus regime, but they stop short of delivering full shareholder rights.
Jurisdiction & perimeter
Issuer: Backed Assets (JE) Limited, incorporated in Jersey; 100% owned by Backed Finance AG (Zug). Prospectus approved by the Liechtenstein FMA (EU passportable). Not offered to U.S. persons; not available to UK retail.
Product Type
– Each xStock is a certificate issued under Swiss/EEA prospectus law, referencing the performance of a stock or ETF.
– Token = digital bearer form of the certificate (ERC-20/SPL).
– Investors don’t own the stock — they own a secured claim over collateral whose value mirrors it.
Legal wrapper
Base Prospectus + Securities Note + Final Terms regime; each xStock is issued under the base program as a tracking certificate.
Nature of holder’s claim
Secured claim over collateral administered by a Swiss Security Agent; investors have a pro-rata right to Net Realization Proceeds.
Enforceability in court
Claims enforceable under Jersey law. The ledgering/registration agreement is governed by Swiss law.
Custody & segregation
Underlying securities/cash held with InCore Bank AG and Maerki Baumann & Co. AG (Switzerland) and Alpaca Securities LLC (U.S.).
Transferability & secondary markets
Tokens are freely transferable on-chain, but off-chain legal limits apply (professional/qualified investor gating).
Investor protection features
Prospectus regime (risk factors, KIDs per product), security agent, named custodians, redemption for cash value.
Robinhood Stock Tokens
Robinhood’s stock tokens look, at first glance, like the same promise as xStocks: U.S. equities available on-chain. But the wrapper tells a very different story. These instruments are not notes, let alone shares — they are cash-settled derivatives issued by Robinhood Europe UAB in Lithuania, supervised by the Bank of Lithuania.
The product is defined in Robinhood’s own documentation as a “US stock derivative (also referred to as a stock token).” In other words, buying a Robinhood stock token means entering into a contract-for-difference–style exposure with Robinhood EU as your counterparty. The “token” represents that contract, but it is non-transferable and non-assignable, and is burned on close-out — not ownership of the underlying.
This distinction matters. Token holders have only contractual rights under the derivative, not shareholder rights: no votes, no corporate disclosures, no direct claim on dividends. Robinhood promises “dividend support,” but that is purely contractual — the platform credits you cash flows in line with the stock, rather than passing on distributions from the issuer. What you actually own is an IOU from Robinhood, enforceable only under Lithuanian contract law within the MiFID II framework.
The wrapper also raises questions about portability. While Robinhood talks about issuance on Arbitrum, the documentation makes clear that tokens cannot leave the platform: they are non-transferable and cannot be held in external wallets. Even if minted on-chain, the enforceability doesn’t travel: what you hold is still just a representation of a derivative contract with Robinhood EU.
In short, Robinhood’s stock tokens are the weakest form of tokenized equity exposure: they deliver synthetic performance with convenient UX, but with no real ownership. If xStocks are structured certificates on-chain, Robinhood’s tokens are CFDs in token clothing — cash-settled, platform-bound, and dependent entirely on Robinhood’s solvency.
Jurisdiction & perimeter
Offered by Robinhood Europe UAB (Lithuania), supervised by the Bank of Lithuania. Defined in Robinhood’s risk disclosure (effective Aug 4, 2025) as “US Stock Derivatives (also referred to as Stock Tokens).”
Product type
– Cash-settled OTC derivatives referencing U.S. stocks/ETFs (and some private names). Not notes or equity.
– Token = representation of a derivative claim against Robinhood EU. May not be redeemed for the underlying.
– Functionally similar to a CFD on a stock, packaged as a “token.”
Legal wrapper
MiFID II investment services by Robinhood EU; classified internally as derivatives (not equity).
Nature of holder’s claim
Contractual derivative rights only against Robinhood EU; no shareholder rights.
Enforceability in court
Enforced as contractual derivative rights under Lithuanian law within the MiFID II framework; counterparty risk is explicit.
Custody & segregation
Held in segregated accounts on Robinhood EU’s books; custody not transferred to third parties. (This is custody of the derivative, not the stock/ETF.)
Transferability & secondary markets
Tradable only inside Robinhood. The “token” is non-transferable and non-assignable and is burned on close-out—it cannot be in a wallet or any blockchain transaction. No external self-custody.
Investor protection features
Retail clients covered by Lithuania’s investor-compensation scheme up to €22,000 for firm insolvency (not market losses). Dividend amounts under the derivative are contractual and not guaranteed.
Securitize
Securitize takes the opposite route from both Backed and Robinhood. Rather than wrapping a note or a derivative, it issues securities in tokenized, book-entry form. The company operates under a full U.S. regulatory stack — a registered transfer agent, a FINRA-member broker-dealer, and an alternative trading system (ATS) for secondary trading. That means when you buy a Securitize token, you are not buying synthetic exposure; you are buying a real security, recorded in the issuer’s official register and mirrored on a blockchain.
Each token corresponds to the specific offering documents of the issuer — it might be equity in a startup, shares in a feeder fund, or a debt instrument. The investor’s rights are defined by securities law and the issuer’s prospectus/PPM, just like in any traditional private placement. The transfer agent maintains the authoritative securityholder register and also publishes the record on-chain.
This legal architecture gives Securitize tokens the strongest enforceability of the three. If you hold one, you appear on the issuer’s official register maintained by a regulated transfer agent, and your rights are governed by U.S. securities law — not just by a contractual promise of exposure. Transfers are restricted by whitelists and compliance checks, but that is precisely what makes the wrapper work: it ensures the instruments stay within regulatory boundaries while still being digitally portable.
In effect, Securitize shows what happens when tokenization is native rather than synthetic: the token represents the security itself in book-entry/tokenized form. It’s slower, more restrictive, and more complex — every transfer requires compliance checks, offerings must sit inside U.S. securities law, and the licensing overhead is heavy — but, on the other hand, it’s also the most legally bulletproof of the current approaches. The result is a structure that maximizes enforceability and investor protection, but at the cost of speed, liquidity, and accessibility.
Jurisdiction & perimeter
U.S. stack with registered transfer agent (Securitize Transfer Agent LLC) and FINRA-member broker-dealer/ATS (Securitize Markets, LLC). FINRA lists “Securitize Markets ATS (SMKT)” in the equity ATS directory.
Product type
Registered or exempt securities (Reg D/Reg S/Reg A+ where applicable) tokenized and recorded with a registered transfer agent; secondary trading via Securitize Markets ATS. Wrapper varies by issuer (fund shares, feeder funds, notes, equity in SPVs, etc.).
Nature of holder’s claim
Securities-law rights defined in each offering’s PPM/prospectus. These are actual security interests recorded by the transfer agent, with blockchain publication mirroring the official register.
Enforceability in court
Governed by U.S. securities and corporate law; transfer agent’s register is authoritative; ATS enables compliant secondary trading.
Custody & segregation
Transfer-agent-based recordkeeping; BD/ATS handles primary issuance and secondary execution; custody of assets depends on the specific product (often through third-party fund administrators or custodians).
Transferability & secondary markets
Trading on Securitize Markets ATS subject to transfer restrictions (holding periods, whitelists, jurisdiction checks). This is the canonical “security token” model rather than a CFD/derivative.
Investor protection features
Regulated entities across the lifecycle (TA + BD/ATS); offerings are registered or exempt; ongoing compliance obligations.
Conclusions
What these three examples show is that tokenization (especially in the context of tokenized stocks) can mean very different things depending on the legal wrapper.
Robinhood’s stock tokens sit at the weakest end of the spectrum. They are convenient, easy to trade, and good for retail UX, but at the end of the day they are just derivatives — CFDs in token clothing. The enforceability is thin.
Securitize is at the other extreme. Its tokens are genuine securities, backed by the full weight of U.S. law and supervised entities. This gives investors the clearest rights and remedies, but also makes the instruments heavy with restrictions and compliance friction. It is the purest example of what native tokenization looks like, but not necessarily the most practical for wide adoption.
Backed’s xStocks occupy the middle ground — and arguably the most fertile one. They are not shares, but they are structured notes with a full EU prospectus, audited custody, and a security agent protecting investors. Unlike Robinhood’s derivatives, xStocks come with a legal framework that investors can actually lean on in court. And unlike Securitize’s tightly gated securities, they manage to circulate on public blockchains with real liquidity.
If you think about tokenization not as a revolution but as an evolution, this middle path looks especially compelling. Backed shows that you can translate a traditional financial wrapper (the tracker certificate) into a native token form and still preserve legal enforceability.
That, in my view, is what makes xStocks the most pragmatic experiment of the three: a legal wrapper that doesn’t just split the difference, but actually bridges the gap between enforceability and usability — a model that might prove closest to how tokenized markets will work at scale.
Resources
- Backed
- https://assets.backed.fi/products/abbott-xstock
- https://cdn.prod.website-files.com/655f3efc4be468487052e35a/6874aa4d0e3f923e019a9bbf_Backed%20Assets_Final%20Terms%20Nr%2051%20(ABTx)_20250709.pdf
- https://xstocks.fi/documents/xstocks-terms-of-service.pdf
- https://wublock.substack.com/p/backed-xstocks-explained-on-chain
- Robinhood
- Securitize
- https://www.sec.gov/newsroom/speeches-statements/peirce-statement-tokenized-securities-070925
