Tokenized stocks promise to make a share of a company useful beyond a buy-and-hold investment. A token that represents stock exposure could move quickly between platforms and potentially be posted as collateral for a loan.

The catch is that a token’s value as collateral depends on details investors cannot ignore, including who holds the underlying shares, what legal claim the token provides, where it can be traded, and whether there is sufficient liquidity to sell it when needed.

Coinbase (COIN) has established a tokenization hub in Abu Dhabi, where its products are issued under a local financial services permission, but the format does not eliminate the practical risks of owning a security under a new structure.

The Securities and Exchange Commission’s tokenized-securities guidance says the rights and obligations attached to a token can differ materially from those attached to the underlying stock.

Tokenized stocks change the usefulness of a share

A tokenized stock is a blockchain-based instrument that gives its holder exposure to a listed company’s shares. The token can be structured in different ways. It may represent an interest in shares held by a custodian, a contractual claim against a third party, or a synthetic product that tracks the stock price without conveying ownership.

That distinction determines the investor’s rights, including treatment in a bankruptcy, voting eligibility, dividends, redemption, and the ability to transfer the position.

The attraction is portability. Conventional stock-market plumbing relies on brokers, custodians, clearing agencies, and settlement schedules.

A token can be transferred on a blockchain network, subject to its own eligibility controls and the platform’s rules. Coinbase’s tokenized-stock materials describe products backed 1:1 by shares held in regulated custody, issued from Abu Dhabi Global Market, and designed for eligible non-U.S. users.

The materials also say dividends are generally reflected through an adjustment to the token’s share-to-token ratio, rather than a cash payment directly to the holder. Coinbase’s product description says the tokens can trade around the clock, including on market holidays.

So when you start to move all of these assets from equities to real world assets to real estate onto blockchains that can talk to each other easily and that people can buy and sell much more easily, then you open up the credit potential of those assets, which is a big, big part of the value of those assets.

John D’Agostino

Collateral is an asset a borrower pledges to secure a loan. A lender values collateral partly by how reliably it can be sold if the borrower fails to repay.

John D’Agostino, head of strategy at Coinbase Institutional, argues that tokenization can improve that process when assets are transferable between compatible systems.

Coinbase Institutional sells services in the market it is describing, so its outlook is also a commercial view. The economic logic, however, is straightforward: more potential buyers and lenders can make an asset easier to finance against, while fragmented ownership records can limit who is willing and able to accept it.

Collateral value depends on liquidity, not a blockchain label

A token does not become dependable collateral simply because it settles quickly. A lender still needs confidence that the token can be sold, that its price tracks the referenced equity, that the legal claim survives a platform failure, and that redemption procedures work under stress.

D’Agostino framed the decision with an example of choosing between a bar of gold and a share of IBM as collateral. Neither asset is universally superior. The useful asset is the one the lender understands, can value, and can liquidate.

Market depth is the immediate constraint for investors.

Coinbase Institutional’s January research note says tokenized public equities remain small relative to tokenized Treasuries and private credit. It also warns that thin order books can produce higher slippage, meaning an investor receives a worse price as an order consumes available buyers or sellers, especially outside regular market hours.

The same research identifies regulatory fragmentation, pricing-oracle errors, and limited trading depth as central risks for tokenized equities.

The legal wrapper matters as much as the market price. SEC staff has said a third-party token may or may not provide an ownership interest in the underlying company, and a holder can face risks tied to the token issuer that a direct shareholder does not.

Investors should read the prospectus or product terms for the particular token instead of assuming that a ticker-looking label conveys the same rights as a share held in a traditional brokerage account.

Coinbase’s expansion plan tests demand for onchain stock exposure

Coinbase’s Abu Dhabi effort is a practical test of whether investors will use tokenized stocks for more than extended-hours trading. D’Agostino said the initial offering covers about seven stocks and is planned to grow to 2,000.

The company received Financial Services Permission from Abu Dhabi’s Financial Services Regulatory Authority in August 2026 to arrange investment deals and provide custody in support of a tokenized-securities launch. The Abu Dhabi Global Market announcement says the framework applies to tokenized securities backed by underlying shares.

Broader access is part of the appeal. Coinbase says its tokenized equities are aimed at eligible non-U.S. users, while its ordinary stock-brokerage accounts are limited to U.S. residents.

Access still has boundaries: the issuer can impose eligibility rules, transfers can be restricted, and regulatory regimes vary by jurisdiction. A wallet can simplify the route to a product, but it does not make the product available everywhere or give every holder identical rights.

Individual investors should separate access from an investment case

A long-term investor who can already buy a stock cheaply in a standard brokerage account has a different decision from an investor who lacks that access.

For the first group, tokenization needs to offer a concrete advantage, such as a product feature, a financing use, or a transfer option that outweighs extra legal and operational complexity.

For the second group, the ability to gain regulated exposure to U.S. equities may be the primary benefit, provided the investor understands the wrapper.

An investor considering a tokenized stock should answer three questions before treating it as equivalent to a conventional share:

1. Determine what the token represents: direct ownership, a beneficial interest in custodied shares, a debt claim, or synthetic price exposure.
2. Determine who stands behind the token: identify the issuer, custodian, transfer agent, redemption process, and the jurisdictions governing the product.
3. Determine whether the market works for the intended use: check trading hours, order-book depth, spreads, transfer restrictions, wallet requirements, and the ability to sell or redeem during volatile markets.

A faster settlement cycle can reduce the time capital is tied up after a trade. It does not remove the investment risks of the underlying company, nor does it guarantee a ready buyer.

Investors who want to borrow against a token face an added layer of uncertainty because lenders set their own collateral policies, loan-to-value limits, and liquidation procedures.

Adoption requires simpler systems and durable safeguards

Financial infrastructure changes slowly because failure carries costs beyond an inconvenient app experience.

D’Agostino expects tokenized assets to gain adoption over time, but he also says onboarding must become easier for users accustomed to existing brokerage systems. The practical hurdle is not merely learning a new interface. Investors, platforms, custodians, and regulators need a common understanding of ownership records, recourse, cybersecurity, and market conduct.

The current regulatory direction is supportive but conditional. In September 2026, the SEC issued a temporary, conditional Innovation Exemption for qualifying venues to trade tokenized National Market System stocks in permissioned settings.

The SEC’s order announcement makes clear that the initiative is limited while the agency considers additional action. That is progress for market structure, not a blanket assurance that every tokenized-stock design offers the same protections.

How tokenized stocks work

Investors should judge the claim before the convenience

Tokenized stocks can make a share easier to move and potentially more useful as collateral, but investors should start with the legal claim rather than the technology.

A token that is fully backed, clearly governed, redeemable, and liquid may serve a purpose for an eligible investor. A token with unclear rights, limited market depth, or difficult redemption should be treated as a distinct product with distinct risks.

The next test for tokenized equities is whether platforms such as Coinbase can expand their eligible listings while preserving clear investor rights, reliable liquidity, and workable cross-platform transfers.

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