Mankun Lawyer | With Robinhood and xStocks being so popular, why not consider creating one yourself?

Introduction RWA (Real World Asset on-chain) is rapidly becoming the mainstream narrative in the Web3 world, and one particularly "down-to-earth" direction - Tokenized Stocks - is currently one of the most feasible directions. The reason is simple: The underlying assets are sufficiently mature and do not require effort to "prove value"; the technical threshold is relatively controllable, with established tools for on-chain issuance and mapping; the regulatory path is becoming clearer, especially in Europe and certain offshore areas, where real projects have already been implemented. However, many people instinctively think of the words "stocks" and wonder: Is this securities? Can it be sold to retail investors? Is a license required? However, in reality, some projects have found a way to achieve "both ends". They can both reduce compliance pressure and reach the retail market, a representative case is: Robinhood: The most popular retail securities platform in the United States; xStocks: Stock token trading available in non-EU, non-US regions, buy and sell on-chain. As a lawyer focused on Web3 compliance, I have also started to frequently receive similar inquiries: How does a stock tokenization platform actually operate? Do small to medium-sized teams like us have a chance to do this? If we want to do it, where should we start and how do we build a structure that is legal? This article does not talk about big words, does not elaborate on concepts, and focuses on answering one question: If you want to create a stock tokenization platform that allows retail participation and has manageable compliance pressures, how should you go about it? Robinhood Model: The Ultimate Productization of Retail Securities Trading Robinhood is not a traditional on-chain platform, but its operational model is highly inspiring for Web3 product design.

1. Core Features: Minimalist interface, abandoning the complex terminology of traditional brokers; zero commission, no minimum deposit, directly serving retail investors; all securities clearing and custody are completed by partner institutions;
2. Place of Registration and Compliance Structure: Robinhood Markets Inc. was established in Menlo Park, California, USA; its subsidiaries Robinhood Financial LLC and Robinhood Securities LLC hold licenses related to securities trading in the United States and are under dual regulation by the SEC and FINRA; in addition to its securities business, Robinhood also has subsidiaries in the UK and other locations engaged in crypto asset services, but its stock trading services are explicitly not available to non-U.S. users.
3. Reasons for Regional Restrictions: Robinhood only serves the US market for two main reasons: If securities trading is opened to overseas users, it will face complex securities sales licensing and registration obligations in regions such as the EU, Canada, and Japan; there is a strong trend of localized regulation in securities supervision, and the compliance costs for overseas expansion are high with uncertain risks. xStocks Model: Token Mapping of Real Stocks + Non-Security Declaration + Retail-Oriented xStocks is currently one of the few platforms that has turned "stock price mapping" into a Token and offers trading, allowing retail investors to participate while deliberately avoiding the red line of securities recognition.
4. Core Structure: Each xStock Token corresponds to one stock in a 1:1 mapping, actually held by brokers or custodians; Tokens do not grant voting rights, dividend rights, or governance rights, and the platform does not promote them as 'securities'; the platform adopts an 'automatic reinvestment' structure for the 'dividends' to Token holders, meaning: if the stock pays dividends, the user's wallet will not receive cash, but instead will receive an equivalent increase in Tokens; users must complete basic KYC, and Tokens can be traded on-chain, but access is not open to users from high-regulation jurisdictions.
5. Entity Structure and Registration Location: The issuer of the token is Backed Assets (JE) Limited, registered in Jersey, which is not part of the EU and is not directly subject to MiCA or Prospectus Regulation; the service entity is Payward Digital Solutions Ltd., registered in Bermuda, which is in a loosely regulated financial zone; xStocks products are issued by non-U.S. entities, deliberately avoiding the applicability of U.S. law.
6. Prohibited Areas and Restriction Logic: xStocks explicitly states that it does not provide services to the following countries or regions: United States (including all U.S. Persons), European Union member states, United Kingdom, Canada, Japan, Australia. The reason is:
7. These regions have extremely strict regulations on securities issuance, and if xStocks are sold locally, they are very likely to be classified as illegal securities issuance;
8. The platform has not obtained licenses or compliance exemptions in these regions, therefore actively circumventing regulations through IP restrictions + KYC restrictions.
9. Choosing to register the issuing entity in Jersey and Bermuda is also a common strategy to reduce compliance risk. The essential differences and common insights between these two modes.

The two paths essentially represent two types of logic: Robinhood: "Doing securities within the regulatory framework" xStocks: "Avoiding securities regulation through structural design" Entrepreneurs do not have to take sides; instead, they should learn how to use legal structures, technical pathways, and compliance isolation to create platforms that are "launchable, scalable, and risk-free." If you really want to do it, how should it be implemented structurally? Tokenization of stocks is not as simple as copying a contract; you need to at least design the following role divisions:

The key is: The platform is responsible for "price mapping + token issuance + user interaction"; the partner is responsible for "position holding + reporting + risk isolation"; both parties interact through agreements and information synchronization mechanisms, but regulatory responsibilities are clearly separated. What institutions need to be coordinated with, and what agreements need to be signed? Stock tokenization is not an isolated system; it must rely on the following resource interactions:

1. Partner: Licensed broker (responsible for actual stock custody or trade execution); blockchain issuance platform and technology provider (deploying contracts + permission control module + oracle); legal advisor (Token qualitative analysis, structural design, user agreement); KYC/AML service provider; smart contract auditor.
2. The agreements to be signed include: Token Issuance White Paper + Legal Disclosure Statement (Offering Terms); Asset Custody Service Agreement / Custody Certificate (Custodial Agreement); Platform User Agreement + Risk Disclosure Statement (T&C); Compliance Service Integration Agreement (KYC, IP Blocking, etc.); Token and Platform Interaction Contract Description Document. Several points you may not be aware of but must consider. Once these points are hit, what we face is not community FUD, but the real hand of regulation: Tokens shall not grant any "yield promises", "governance rights", or "claim rights"; users from high sensitivity legal jurisdictions such as the EU, USA, and Japan are not allowed; terms such as "stocks", "shareholder rights", and "dividends" must not be used; geographical and identity controls must be enforced through both technology and protocols; a legal qualification opinion letter, risk disclosure statement, and KYC audit records should be prepared for reference. What you can or cannot do depends not on the license, but on the structure. Tokenization of stocks is a feasible project direction that requires careful design. It is neither "unregulated" like NFTs nor "rule-closed" like traditional securities. What you need to do is not to make radical breakthroughs, but to: Find a suitable landing point, design a clear structure, clarify what your token represents, and avoid crossing the three red lines of users, markets, and laws. This market is not saturated; instead, it is in a gap where institutions are paying attention but acting cautiously, and entrepreneurs are interested but hesitant to enter. Stop looking at what others are doing. The tokenization of stocks is still not crowded; once it is truly occupied by giants, you will only be able to be a user. As a Web3 compliance lawyer, I would prefer to help you design a platform that is "regulatory-compliant, user-friendly, and technically feasible." It's not about achieving everything at once, but ensuring we start off on the right foot.

/END. Original Authors: Shao Jia Dian, Huang Wen Jing