(Bloomberg) -- The era of round-the-clock stock trading is here, if you know where to look.

Binance on Monday began allowing its non-U.S. based users to trade a tokenized version of Tesla Inc. stock, joining a growing list of cryptocurrency exchanges that are setting their sights on the world of traditional finance.

At first glance, the stock tokens might seem like a solution looking for a problem.

Fractional shares and after market trading are common features offered by U.S. brokerages, but for investors based outside of the U.S. the offerings provide ready access to the country’s $47 trillion stock market without having to jump through regulatory hoops or having to wake at odd hours to transact. And, on some exchanges such as FTX, cryptocurrencies can be used as collateral for buying stocks on margin.

“Binance serves many users around the world and we are very pleased to be able to help them participate in the equity market,” said Binance Chief Executive Officer Changpeng Zhao in a statement. “Stock tokens demonstrate how we can democratize value transfer more seamlessly, reduce friction and costs to accessibility, without compromising on compliance or security. Through connecting traditional and crypto markets, we are building another technological bridge for a more inclusive financial future.”

On the first day of trading on Binance, volume for the Tesla token was about $10 million, according to a spokesman. That’s a drop in the bucket compared to Tesla stock’s one-year average daily trading volume of almost $57 billion, but if it were a cryptocurrency tracked by CoinMarketCap.com it would have been one of the 100 most liquid coins.

How the tokens work varies from exchange to exchange.

On Binance and FTX each token is backed by a share of the underlying stock through partnerships with German financial firm CM Equity AG and Swiss-based Digital Assets AG. Token owners are entitled to some, but not all of the benefits of owning the actual stock. Dividends accrue to token holders on both Binance and FTX, but voting rights reside with CM Equity, which according to FTX may choose to vote the shares “in its discretion.”

Synthetic Stand-Ins

On other exchanges like Terraform Labs’ Mirror Protocol, the tokens are synthetic stand-ins for the stocks. Prices are tracked by a so-called oracle system that cross references the token price against its real counterpart.

Whether backed by actual shares or a synthetic version of a stock, tokens seek to solve the same core problems, according to Do Kwon, the CEO and co-founder of Terraform Labs.

“Synthetic assets like tokenized stocks help people in financially disenfranchised regions or politically dislocated areas join in the wealth creation of global markets by circumventing onerous regulatory barriers,” he said. “A user in Southeast Asia who cannot own Apple stock due to excessively high capital gains taxes on foreign equities, prohibitive capital controls, or a dearth of international brokerage avenues can tap into synthetic assets to gain price exposure.”

That ease of access has attracted plenty of interest.

“The two leading synthetic assets protocols are Synthetix and Mirror Protocol, which cumulatively account for about $4.5 billion in total locked value -- with the vast majority of that value confined to tokenized equities like major U.S. tech stocks,” said Kwon. “Both are growing at amazing rates.”

The crossover into traditional finance comes at a milestone moment for cryptocurrency exchanges.

Coinbase Global Inc. plans to go public Wednesday through a direct listing. Coinbase, which doesn’t offer stock tokens, was valued at about $90 billion in its final week of trading on Nasdaq’s private market, Bloomberg News reported. That valuation is, at least partially, based and limited by the size of the crypto market which currently stands at about $2 trillion. Any inroads made into global stock markets could expand crypto exchanges’ addressable markets by multiples of where it currently stands.

“It seems to me that this is a competition among new and old exchanges,” said Will Cong, an associate professor at Cornell University’s SC Johnson College of Business. “There is a general trend of digitization and upgrading database systems potentially using blockchains. Incumbent exchanges may not be threatened or incentivized enough to constantly innovate in this aspect. Crypto exchanges come in and compete away market shares through introducing products such as securitized stock tokens.”

Cong cautions that safety concerns will weigh on any attempts crypto exchanges try to make into traditional finance.

“Many crypto exchanges are still centralized,” said Cong. “If anything, they have more power than traditional exchanges that are under greater regulatory scrutiny. So unless more measures are put into place, it is hard to argue they are safer.”

Still, the push into stocks by crypto exchanges could prove to be the impetus for tokenization, a possibility raised by former Securities and Exchange Commissioner Jay Clayton during an October 2020 webinar.

“If you talk about trading today, all trading is electronic,” Clayton said.“That was not the case 20 years ago. It may very well be the case that just as you had stock certificates and now you have entries, digital entries for representing stock. It may very well be the case that those all become tokenized.”

To Andrew Bull, the founding legal partner at Bull Blockchain Law, it’s only a matter of time until U.S. regulators approve tokenized stocks.

“The U.S. will undoubtedly allow for tokenized stocks to trade at some point in the future, but like the current Bitcoin ETF situation going on in the U.S., the transactional timeline for where funds come from in the token context is not yet satisfactory,” said Bull. “Adoption will most likely take significantly longer due to regulatory hurdles that may simply boil down to a desire to stick with the current infrastructure.”

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