Square tokenized stock FTX: Tokenized Stock Trading on Crypto Platforms

What is Square tokenized stock FTX

Friends, imagine being able to buy and sell shares of big companies like Apple and Tesla on a crypto platform, just like trading Bitcoin, without having to go to a traditional stock exchange—isn't that cool? “Square tokenized stock FTX” (abbreviated as SQ) was an innovative product once offered by the FTX crypto exchange, allowing users to trade traditional company stocks in the form of digital tokens, including shares of the well-known payments company Square (now called Block, Inc.).

Simply put, it's like “digitizing” a traditional stock, turning it into a token that can circulate on the blockchain. This token represents your ownership of the real stock. The FTX platform partnered with the German securities firm CM-Equity AG, which purchased and held the actual stocks, and then FTX issued digital token versions of these stocks on its platform. This way, you could trade these stock tokens 24/7, and even buy just a small fraction of a share (i.e., “fractional shares”), which is usually difficult to do in traditional stock markets.

Target Users and Core Scenarios: This project mainly targeted global users who wanted to participate in the traditional stock market via crypto platforms, or who wished to make small, fragmented investments. It provided a new avenue for investors who might have difficulty accessing traditional stock markets directly.

Project Vision and Value Proposition

The vision behind FTX’s tokenized stocks was to break down the barriers of traditional financial markets and make global stock investing more accessible. Its core value proposition includes:

• Lowering the barrier to entry: Through tokenization, users could buy “fractions” of a stock, such as just 0.1 shares, allowing small investors to participate in high-priced stocks.
• 24/7 trading: Unlike the fixed trading hours of traditional stock markets, tokenized stocks could be traded around the clock on the FTX platform, offering greater flexibility.
• Global accessibility: It provided a relatively convenient channel for international investors who might be unable to participate in traditional stock markets due to geographic restrictions or high fees.
• Integration with crypto: Users could trade directly using cryptocurrencies, bridging traditional financial assets and the crypto world.

Compared to similar projects, FTX was one of the leading exchanges to explore tokenized stocks early on, seeking a balance between compliance and innovation by partnering with regulated financial institutions.

Technical Features

“Square tokenized stock FTX” itself was not an independent blockchain project, but rather a product offered by the FTX trading platform. Therefore, its technical features mainly lay in how FTX implemented this tokenization:

• ERC-20 tokens: These tokenized stocks were typically issued as ERC-20 standard tokens. ERC-20 is a technical standard for creating tokens on the Ethereum blockchain, defining a set of rules for compatibility and interaction. While initially based on Ethereum, FTX later deployed its tokenized stocks on the Solana blockchain to take advantage of faster transaction speeds and lower costs.
• Off-chain asset backing: The value of these tokens was not created out of thin air; they were backed by real stocks. Germany’s CM-Equity AG would purchase and hold these real stocks as “collateral” for the tokens. This is similar to a bank issuing banknotes backed by an equivalent amount of gold reserves.
• KYC/AML compliance: To meet regulatory requirements, users typically had to complete “Know Your Customer” (KYC) and Anti-Money Laundering (AML) verification with both the FTX platform and its partner CM-Equity AG when trading tokenized stocks. KYC (Know Your Customer): The process by which financial institutions verify customer identities to prevent money laundering, terrorist financing, and other illegal activities.

Tokenomics

For “Square tokenized stock FTX (SQ)”, this specific tokenized stock did not have an independent tokenomics model, as it was not a native crypto project. It was a derivative whose value was directly pegged to the real stock price of Square (now Block, Inc.) in the traditional stock market.

• Token symbol/issuance chain: The token symbol was SQ, initially likely based on Ethereum’s ERC-20 standard, and later FTX’s tokenized stocks also expanded to the Solana blockchain.
• Total supply or issuance mechanism: The number of tokens issued was linked to the actual number of Square shares held by CM-Equity AG, usually at a 1:1 ratio, i.e., one token represented one real share.
• Inflation/burn: Since it represented real stocks, there was no inflation or burn mechanism as in traditional cryptocurrencies. Token minting or burning depended on the purchase and redemption of the underlying real stocks.
• Token utility: The main use of the SQ token was as a digital representation of Square shares, allowing users to trade on the FTX platform and benefit from stock price fluctuations. It did not confer voting or other shareholder rights, but FTX stated it would strive to allow token holders to receive economic benefits such as stock dividends.
• Distribution and unlocking: These tokens were sold to users via the FTX platform, with no traditional token distribution or unlocking schedule.

It should be noted that the FTX platform itself had a platform token called FTT, which played an important role in the FTX ecosystem, including for trading tokenized stocks, futures, and providing benefits to holders. However, this is a different concept from the SQ tokenized stock itself.

Team, Governance, and Funding

Since “Square tokenized stock FTX” was a service provided by the FTX trading platform, its team, governance, and funding were closely tied to FTX, rather than being independent.

• Core members: The FTX platform was founded by Sam Bankman-Fried in 2018. He was one of the main drivers behind FTX’s tokenized stock business.
• Team characteristics: The FTX team was known for its expertise in crypto derivatives trading and was committed to providing innovative financial products.
• Governance mechanism: FTX’s governance was determined by its centralized operations, not by decentralized community governance. The rules and operations of tokenized stocks were set and executed by FTX and its partners (such as CM-Equity AG).
• Treasury and funding: As a major crypto exchange, FTX had its own reserves and operating funds. However, FTX filed for bankruptcy in November 2022, revealing serious issues in its fund management and operations.

For tokenized stocks, the underlying real stocks were held in custody by Germany’s CM-Equity AG, ensuring the value backing of the tokens. When trading tokenized stocks, users also became clients of CM-Equity AG and had to comply with its regulatory requirements.

Roadmap

As a product of the FTX platform, the development roadmap of “Square tokenized stock FTX” was related to FTX’s overall strategic planning. Here are some key milestones related to FTX’s tokenized stocks:

• October 2020: FTX launched tokenized stock trading for the first time, initially offering tokenized shares of companies like Tesla, Apple, and Amazon.
• April 2021: FTX and Binance listed Coinbase’s stock token (COIN) to coincide with Coinbase’s Nasdaq listing.
• June 2021: FTX announced a partnership with Digital Assets AG to launch tokenized stock trading for 60 companies, including Facebook, Google, and Netflix, and stated that these tokenized stocks would be on the Solana blockchain.
• November 2022: FTX filed for bankruptcy due to a liquidity crisis and mismanagement, resulting in the suspension of all its products (including tokenized stocks), effectively terminating the project.

Due to FTX’s bankruptcy, its tokenized stock business is no longer operational, so there are no future plans or milestones.

Common Risk Warnings

Although tokenized stocks were designed to combine the advantages of traditional finance and blockchain, they also came with unique risks, especially when operated by centralized platforms like FTX:

• Technical and Security Risks

  • Platform risk: Trading and custody of tokenized stocks depended on centralized platforms (like FTX). If the platform suffered technical failures, was hacked, or mismanaged, users’ assets could be at risk. FTX’s bankruptcy is the most painful lesson, causing users to lose access to or redemption of their assets.
  • Smart contract risk: Although the tokens themselves were based on blockchain smart contracts, these contracts could have vulnerabilities that, if exploited, could lead to asset loss.

• Economic Risks

  • Underlying asset risk: The value of tokenized stocks depended directly on the real stocks they represented. If the share price of Square (or any other tokenized company) fell, the token’s value would also drop.
  • Liquidity risk: Although FTX offered 24/7 trading, in some cases, tokenized stocks could have insufficient trading volume, making it difficult for users to buy or sell at ideal prices.
  • Redemption risk: While in theory tokenized stocks could be redeemed for real shares, this process depended on the operations of partner financial institutions (like CM-Equity AG). After FTX’s bankruptcy, redemption became complicated or even impossible.

• Compliance and Operational Risks

  • Regulatory uncertainty: Tokenized stocks are a relatively new field, and regulatory frameworks are still evolving globally. Different countries and regions may have different legal definitions and regulatory requirements for tokenized securities, leading to compliance risks.
  • Centralization risk: Despite using blockchain technology, the issuance and custody of tokenized stocks still relied on centralized entities. This meant these entities controlled the assets and could be affected by regulatory pressure or their own operational issues.
  • Not investment advice: All discussions about tokenized stocks should be considered informational, not investment advice. Crypto asset markets are highly volatile; investing is risky, so always do your own research and make decisions cautiously.

Verification Checklist

Given that “Square tokenized stock FTX” was a product of the FTX platform and FTX is now bankrupt, the applicability of the following checklist is different. For a terminated project, these verifications are mostly retrospective.

• Block explorer contract address: The tokenized stock SQ was an ERC-20 (or Solana-based) token, and in theory, its contract address and on-chain activity could be checked on the relevant block explorer. However, due to FTX’s bankruptcy, trading and value of these tokens have essentially dropped to zero.
• GitHub activity: “Square tokenized stock FTX” itself did not have an independent GitHub repository. The FTX platform may have had its own technical development repositories, but these were not directly related to the SQ tokenized stock.
• Official documentation: FTX’s official website and whitepaper were once important sources for understanding its tokenized stocks. But now the FTX website is no longer accessible, and its whitepaper content must be obtained via historical archives or third-party references.
• Community forums/announcements: FTX used to release information about tokenized stocks through official announcements and community channels. These now mainly exist as historical records.
• Audit reports: For tokenized stocks, important audits might include those of the financial institutions (like CM-Equity AG) holding the real stocks, as well as audits of the FTX platform’s own security and compliance. However, FTX’s bankruptcy shows there were serious problems with its internal audits and risk controls.

Project Summary

Friends, as we can see from the above, “Square tokenized stock FTX” was an innovative product launched by the FTX crypto exchange around 2020, aiming to use blockchain technology to let users trade traditional company stocks, such as Square (now Block, Inc.), in the form of digital tokens.

The core idea of this service was to break down the geographic and capital barriers of traditional financial markets, allowing global users to trade “fractions” of stocks 24/7 and to trade directly using cryptocurrencies. FTX partnered with the regulated German financial institution CM-Equity AG to ensure that these tokens were backed by real stocks and sought to operate within a compliant framework.

However, the ultimate fate of this project was closely tied to the FTX trading platform. When FTX went bankrupt in November 2022 due to mismanagement and a liquidity crisis, all its tokenized stock services were also terminated. This serves as a profound reminder that even blockchain-based innovative products still expose users’ assets to significant risk if the underlying centralized platform fails.

In summary, “Square tokenized stock FTX” represented an attempt to combine traditional financial assets with blockchain technology, demonstrating the potential of blockchain to improve the efficiency and accessibility of financial markets. At the same time, the FTX case warns us that when seeking a balance between decentralization and centralization, platform transparency, compliance, and risk management are crucial. For any crypto project, especially those involving tokenization of traditional assets, it is essential to thoroughly research the underlying mechanisms, partner qualifications, and platform risks. For more details, please do your own research, and remember that crypto asset investment carries high risk.