What new gameplay does the encryption giant Galaxy Digital bring with the launch of the first native US stock Token?

Author: Azuma, Odaily

The trending “tokenization of US stocks” has once again evolved into a new play.

Last night, the cryptocurrency giant Galaxy Digital (GLXY), which is listed on Nasdaq, officially announced its collaboration with the transfer agent Superstate (which Galaxy Ventures has invested in) registered with the SEC to tokenize GLXY's Class A common stock on the Solana blockchain. This is the first time in history that a publicly traded U.S. company has proactively attempted to tokenize its shares on a shared blockchain—distinct from the current mainstream “mapped” or “wrapped” U.S. stock tokenization solutions, which are managed by third parties for minting and redemption. These on-chain versions of GLXY are not “wrapped assets,” but actual on-chain shares that carry the same financial and legal rights as their off-chain counterparts.

According to Galaxy Digital, stock tokenization involves a series of complex processes including issuance, record-keeping, custody, settlement, reporting, brokerage, and trading. Due to the previous lack of clear regulatory rules, a small number of players trialing stock tokenization in the US have adopted relatively simple “mapping” or “wrapping” models. The flaw of this old model is that token holders do not have actual rights to the underlying company stocks. To truly realize the widespread adoption of stock tokenization, this issue must be addressed.

Implementation Mechanism

The solution proposed by Galaxy Digital is to develop a clear on-chain process and architecture that can truly tokenize existing stocks - not mapping, not wrapping, but directly putting real shares on-chain.

According to disclosures from Galaxy Digital and Superstate, this collaboration is based on the latter's stock on-chain platform, Opening Bell. Users can convert GLXY's Class A common stock into tokenized shares on a one-to-one basis through this platform, with the specific process outlined as follows:

• Complete KYC registration at Superstate (approximately 10 minutes for registration, 2 hours for verification).
• Instruct your broker to transfer the stock to Galaxy's transfer agent Equiniti via the Direct Registration System (DRS) (approximately 3 business days).
• Contact Equiniti to transfer shares to Superstate's “on-chain available account” (approximately 4 hours processing).
• Superstate mints GLXY tokens at a 1:1 ratio, which are then delivered to your Solana wallet. (Approximately 10 minutes).
• From now on, you can freely store, transfer, or trade with other registered users.
• To revert to the traditional form, you can execute the above process in reverse.

Galaxy Digital explained that the above process aims to ensure a one-to-one correspondence between on-chain GLXY and Nasdaq-listed stocks. Any shareholder who can complete Superstate compliance registration can convert their GLXY shares into tokenized shares on the Solana blockchain. If you do not currently hold GLXY shares but wish to purchase tokens on-chain, you only need to register with Superstate and then buy on-chain GLXY tokens from existing holders.

Due to the early stage of GLXY's on-chain process, the on-chain liquidity is temporarily insufficient, so the current on-chain process is relatively cumbersome. However, in the future, as on-chain liquidity gradually accumulates, most users will actually not need to participate in this cumbersome process themselves.

In addition, Galaxy Digital also added that due to the unclear regulatory rules related to DEX, the company does not currently support trading of these stock tokens on automated market makers (AMM) or other fully decentralized exchange mechanisms on Solana. The company's plan is to gradually expand trading venues as U.S. securities regulators provide clearer guidance, ultimately allowing tokenized shares to be traded directly on AMM and decentralized exchanges — this means that until a more mature and transparent secondary market emerges, the on-chain version of GLXY does not guarantee liquidity, but bilateral transactions can still occur between wallet addresses that have completed Superstate compliance registration.

potential risks

According to the proactive disclosure from Galaxy Digital, the on-chain version of GLXY may have the following three potential risks.

One risk is the theft or forgetting of the wallet. Holders of GLXY tokens may lose access to their wallets if they lose their keys. Superstate can reissue the tokens to a new wallet controlled by the shareholder — since Superstate tracks the on-chain circulation of all tokenized GLXY among shareholders and is aware of all shareholder identities, it can destroy irrecoverable tokens and reissue them to the shareholder's new wallet. It is important to note that while GLXY stock tokens can be restored in the case of lost wallet keys, other assets within the wallet cannot be recovered.

Second, there is the price difference risk between tokenized GLXY and traditional GLXY stocks. The price of traditional GLXY stocks may deviate from the price of tokenized GLXY. The on-chain stock market is still in its early stages, and even if AMM trading is enabled in the future, there is no guarantee that tokenized GLXY will form or maintain a sufficiently liquid and orderly market. This could lead to fragmented liquidity, hindered price discovery, and wider bid-ask spreads, resulting in a long-term divergence between the prices of tokenized GLXY and traditional GLXY, especially in cases where arbitrage is constrained by operational or regulatory restrictions. The core method to promote price difference correction between different markets is to establish a simple two-way exchange bridge. Galaxy Digital has built this bridge, allowing for a one-to-one exchange between on-chain tokens and off-chain stocks. However, the use of this bridge may still take time to normalize, and thus the arbitrage mechanism may still be hindered in the short term.

Third, there is the risk of regulatory uncertainty. The SEC may still not allow Galaxy Digital to tokenize common stock in this manner, although Galaxy Digital believes that this tokenization process is designed to be elegant enough to comply with existing securities regulations. However, it cannot be ruled out that the SEC may reach a different conclusion. If the regulatory agency determines that the platforms, mechanisms, or participants involved in the tokenization of GLXY in the secondary market do not meet legal requirements, Galaxy Digital or market participants may face enforcement actions, fines, or be required to withdraw or restructure certain parts of the project. If Galaxy is required to stop its on-chain stock program, Superstate can suspend the token contract, recall all tokenized shares, and work with on-chain shareholders to convert them back to traditional shares, which will then be delivered back to the traditional market system. This process may take a considerable amount of time, during which it may be difficult for shareholders to trade.

Brief Comments and Outlook

Overall, the solution proposed by Galaxy Digital in collaboration with its investment target Superstate provides a clearer on-chain process and structure compared to other third-party US stock tokenization service providers. Additionally, Galaxy Digital, as the issuing entity, can clarify the rights status of the tokens issued, which has certain positive significance in addressing the mismatch of rights between traditional “wrapped” US stock tokens and real stocks.

Galaxy Digital believes that “the equal rights of tokens and stocks” is a prerequisite for the large-scale adoption of stock tokenization. We fully agree with this and tend to believe that Galaxy Digital's solution can address this issue on the issuance side; however, a bigger problem lies on the circulation side — currently, only registered users of Superstate can hold GLXY tokens. Moreover, GLXY does not support trading between DEXs at this time and can only be traded bilaterally among Superstate registered users. Even if DEX support is added in the future, the liquidity situation remains uncertain… Compared to the complete experience offered by traditional securities trading systems, similar restrictions will hinder users from migrating to the blockchain.

The resolution of the “equal rights issue” can only break the psychological barriers before users enter the market, but to truly attract and retain users, there is still much work to be done in continuously optimizing liquidity and experience.