Stock Tokenization: Arbitrage and Investment Opportunities in Emerging Markets

1. Introduction

Recently, stock tokenization has become a market hotspot, attracting the attention of numerous investors. This article will systematically outline the implementation principles of stock tokenization, delve into the arbitrage and investment opportunities present in the current market, and provide a detailed analysis of different types of arbitrage logic, operational processes, and potential limitations, helping professional investors more effectively identify market opportunities. At the same time, we will also explore the opportunities for individual investors in this trend, such as fragmented trading, diversified asset allocation, and other new paths. Although stock tokenization brings many opportunities, it still faces challenges in technical implementation, price anchoring, and other aspects, requiring investors to maintain rational judgment.

2. Implementation Mechanism of Stock Tokenization

2.1 Definition

Stock tokenization refers to the conversion of traditional company stocks into tokens on the blockchain through the smart contract and custody mechanisms, allowing them to be held, traded, and combined on-chain. Its essence is a derivative of traditional stocks and does not represent direct ownership of the stocks; therefore, the value and risk of stock tokens are closely related to the underlying stocks.

2.2 Mainstream Implementation Path

Currently, there are three mainstream structures for stock tokenization:

• Third-party Custody + Exchange Access: Regulatory companies prove that third parties genuinely hold real company stocks, and tokens are issued at a 1:1 ratio after dual verification by oracles. The exchange is responsible for front-end display, user trading, and trade matching. The advantages of this structure are transparency and deep price anchoring through staking real stocks.

• **Licensed Broker + Proprietary Link: ** With specific licenses, providing a complete issuance, settlement, and self-custody cycle in the blockchain, ensuring maximum compliance, but also with high technical and legal complexity.

• Contract for Difference (CFD) Structure: Users trade contract products linked to stock prices, without acquiring actual stockholding rights or receiving dividends. Such products are typically priced by the platform itself and bear market-making responsibilities, lacking support from underlying assets, hence do not grant shareholders any rights and are subject to strict regulatory constraints, facing significant de-pegging risks.

3. Arbitrage Opportunities in Stock Tokenization

Currently, we mainly discuss stock tokens issued by third-party custodians. The prices of these tokens are based on the underlying real stocks, which possess strong anchoring attributes and lower investment risks.

According to data platforms, as of July 9, 2025, the total market value of stock tokens is $422 million, while the market value of just NVIDIA's stock has reached $3.9 trillion. This shows that, compared to the traditional stock market, the liquidity of stock tokens is severely lacking.

Insufficient liquidity combined with time differences in trading leads to discrepancies between token prices and corresponding stock prices across different platforms and time periods. Price deviations create opportunities for arbitrage. This article focuses on the application of three classic arbitrage strategies in stock tokens.

3.1 Hedging Arbitrage between the Spot Market and the Token Market

Arbitrage Principle

When the token exchange and the stock market open simultaneously, if the token price is significantly higher than the spot stock price, arbitrageurs can buy the spot stocks while shorting the corresponding stock tokens in the token market. If the prices subsequently revert, arbitrageurs can realize profit by selling the spot and buying back the tokens to close their positions, earning the price difference. The reverse is also true.

Arbitrage operation process

For example, at a certain point in time on July 9, 2025: at this time, the price of Nvidia (NVDA) spot stock is $160.00; meanwhile, on a certain trading platform, the corresponding stock token NVDAX is quoted at $160.40.

A positive price difference of $0.40 has emerged between the two, meaning the Token price is higher than the spot price. Arbitrageurs can execute the following actions based on this:

1. Buy NVDA spot stocks to lock in low-priced assets;
2. At the same time, short sell NVDAX stock tokens on the token trading platform to short overvalued assets at a high price;
3. Subsequently, continuously monitor the price trends and order book depth of the two markets;
4. When the prices of the two markets revert and approach $158.00:
   • Buy spot stocks before selling in the traditional market;
   • Open a limit order in the token market to cover the short position and complete the hedging close.
5. Each share completes a risk-free Arbitrage, with returns coming from the initial price difference, resulting in a profit of $0.22 after deducting fees.

Arbitrage conditions

Hedging arbitrage is highly sensitive to slippage and transaction fees, and it requires quick identification of buy and sell signals for execution. It is suitable for quantitative institutions with high-frequency trading capabilities that can obtain lower transaction fees.

3.2 Arbitrage of the price difference of the same stock Token between different exchanges.

Arbitrage Principle

Cross-exchange arbitrage is one of the most classic types of crypto arbitrage. The principle is to buy tokens on a trading platform with a low price and withdraw them to sell on a trading platform with a high price. If the price difference between different exchanges is large enough that the profit remains after deducting fees, the operation can be executed.

Arbitrage operation process

Assuming the price of a certain Token on exchange A is 100 USDT, and the price on exchange B is 103 USDT.

Arbitrageurs can buy tokens at exchange A and then transfer them to exchange B to sell at around 103 USDT to complete the arbitrage. After deducting the buying fees, withdrawal fees, and selling fees, there is still a profit.

Arbitrage conditions

Arbitrage of this type is constrained by factors such as on-chain transfer speed, withdrawal limits, exchange deposit time, and trading pair depth. If on-chain transfers are involved, network congestion and delays must be considered. Arbitrageurs often need to use pre-stored liquidity, quantitative trading, and multi-account collaboration to achieve "risk-free arbitrage."

3.3 time difference arbitrage

Arbitrage principle

Traditional stock settlements typically have a delay of T+2 or longer, while the trading and settlement of tokenized stocks are based on blockchain, theoretically achieving settlement in minutes or even seconds. Arbitrageurs can take advantage of the time difference in settlement to arbitrage using the instant price adjustments in the token market before the traditional stock settlement is completed.

For example, the opening hours of traditional markets are from Monday to Friday, 09:30 - 16:00, while the crypto market operates 24/7 without interruption. This means that during off-market hours, such as weekends or pre-market and after-hours, the prices of stock tokens may experience significant fluctuations driven by news events, while the actual stock prices have not yet adjusted, creating a brief arbitrage window. Pre-market information arbitrage is one of the main forms of time-lag arbitrage, where news such as earnings releases, geopolitical events, and favorable macro policies cause tokens to rise or fall ahead of the spot market.

Arbitrage operation process

1. Arbitrageurs deploy monitoring systems or rely on news sources to capture significant news (such as Nvidia releasing strong quarterly earnings, a country's central bank raising interest rates, or international geopolitical conflicts escalating) during non-trading hours.

2. Analyze the direction and magnitude of the impact of the news on related stocks, which can usually be estimated through historical event backtracking. If the news is judged to be positive, immediately buy the related stock tokens on the token platform; if judged to be negative, you can short the related stock tokens.

3. Wait to close positions after the spot market opens: If the actual stock price moves in the direction of the Arbitrage, then choose the right time to close positions after the spot market opens; or wait for the Token price to return and close positions in the token market when it aligns with the spot price to capture the price difference.

Arbitrage条件

Arbitrage opportunities of this kind often last only a few minutes or even seconds, requiring high-performance news push systems and automated trading responses. In addition, attention must be paid to the accuracy of the news sources to avoid misjudging investment directions due to false news.

In addition, stock tokens can also be applied in some classic arbitrage strategies, such as triangular arbitrage, funding rate arbitrage, etc.

4. Opportunities for Individual Investors

Arbitrage often has very high requirements for investors' skills, capital, and speed of information acquisition, making it more suitable for professional investors. However, there are also opportunities for individual investors amidst the wave of stock tokenization.

4.1 Purchase fractional stocks

In traditional securities, some markets require a minimum purchase of 1 share, while others require 100 shares. Investors who want to buy stocks of leading companies like Google, Amazon, and Tesla often have to pay a high price per share, which can be a significant burden, especially for novice investors. However, after stock tokenization, a stock can be divided into smaller units, such as 0.1 shares or even 0.001 shares.

For example, the current price of one share of Nvidia stock NVDA is $162.88, with a minimum purchase of one share. On a certain trading platform, the minimum purchase is 0.001 shares, which means you can hold Nvidia stock Token with just 0.16 USDT.

4.2 Multi-Asset Allocation

The all-weather trading system allows users to trade at any time without worrying about opening hours, enabling them to diversify their asset allocation and resist regional financial risks.

4.3 lower trading costs

In traditional stock market trading, intermediaries often charge various fees. However, trading tokenized stocks through decentralized exchanges (DEX) can significantly reduce trading costs and minimize friction for investors. For example, stock brokerage trading fees range from 0.1% to 0.5%, while on certain trading platforms, the fees are only 0.025% to 0.1%.

5. Risks and Challenges

Although stock tokenization arbitrage provides investors with unprecedented cross-market, high-efficiency trading opportunities, different arbitrage paths themselves also contain many risks.

The core basis of the above arbitrage is that different financial products of the same underlying asset tend to have a regression trend in their prices. If the price difference does not converge but continues to widen, investors will face losses. Therefore, investors need to manage their positions and control risks effectively. Additionally, there are common risks in arbitrage such as slippage risk, delay risk, and transaction fees eroding profits.

Trading stock tokens also carries unique systemic risks:

• Oracle and price decoupling risk: Most stock tokens rely on oracles or centralized matching systems to update prices. If there are failures, delays, or attacks, it can lead to severe fluctuations in token prices or permanent decoupling.

• Legal and Regulatory Challenges: In most jurisdictions, stock tokens have not been clearly defined, and arbitrageurs may unknowingly encounter risks related to unregistered securities trading and cross-border flows of foreign assets.

6. Conclusion

Stock tokenization is not only a technology-driven practice of asset on-chain, but also a typical path for the crypto market to penetrate "real-world assets" (RWA). The emergence of this new type of asset provides opportunities for both professional and individual investors. Investors can choose different investment strategies based on their own characteristics. It is important to note that stock tokens also face systemic risks such as price decoupling and legal challenges, and investors need to closely monitor the security of the underlying assets.