Why Liquidity Matters for Tokenized Stocks

Tokenized stocks recently launched onchain. While the direction is promising, early models reveal deep structural issues: limited liquidity, wide spreads, and persistent price dislocations. Here's why:

Market Depth Is Severely Limited

One tokenized version of AAPL, for example, recently had just $195 of depth before incurring 2% slippage, with spreads at 0.64%. At one point, it traded at a 14.92% premium over the underlying equity price.

Yet these pricing dislocations aren't temporary launch issues—They reflect fundamental limitations.

Why These Dislocations Happen

At the core of the issue are high-friction minting and redemption mechanisms that prevent efficient arbitrage, meaning that secondary market prices inevitably diverge from underlying reference prices.

We’ve seen this story before with stablecoins, where, in times of stress, even fully backed stablecoins can still deviate from their peg. Why? Gated redemptions and arbitrage that can’t move fast enough.

The Solution

When tokens can be instantly minted and redeemed at no cost, arbitrageurs step in, keeping secondary market prices aligned with underlying assets.

That’s exactly what Ondo Global Markets (“Ondo GM”) enables for tokenized stocks and ETFs, where liquidity isn't recreated, rather, it's inherited from public markets.

We discussed this challenge publicly back in early 2024:

“There is material cost in recreating liquidity for tokenized assets that is largely duplicative with the liquidity for the assets that back them.”

“We do not think that it would be advisable, for instance, to create a fund that invests in TSLA and then to tokenize ownership in that fund and then endeavor to create secondary market liquidity in those tokens with the help of arbitrageurs. We have a better solution.”

“Ondo GM will provide access to traditional exchange liquidity for onchain investors and protocol developers.”

Ondo GM Takes a Fundamentally Different Approach

With Ondo GM, tokens are fully backed and secured by underlying stocks and ETFs, while also giving investors access to the liquidity of traditional markets.

When users buy TSLA via Ondo GM:

1. Stablecoins fund the purchase
2. TSLA is acquired on NASDAQ
3. The user receives TSLAon token, instantly

Tokenizing real-world assets requires solving for liquidity from day one. Ondo GM delivers this, offering seamless onchain access to traditional exchange liquidity across hundreds of stocks.

Soon.