Want to Trade Amazon on a Crypto Exchange? The Price Might Be Off by 300% — WSJ

By Alexander Osipovich and Vicky Ge Huang

Crypto companies have grand plans to reinvent the stock market using blockchain technology. They are off to a bumpy start.

Digital tokens designed to track popular stocks such as Amazon and Apple have deviated wildly from the price of the underlying shares since their launch two weeks ago. Robinhood Markets is facing scrutiny from its European regulator after it launched a token designed to let investors bet on OpenAI — without getting permission from the artificial-intelligence startup. And even some industry insiders fret that such "tokenized" stocks create opportunities for bad actors to engage in insider trading and market manipulation without getting caught.

In a flurry of announcements in late June, companies including Robinhood, Kraken, Gemini and Bybit unveiled blockchain-based versions of U.S. stocks and exchange-traded funds for non-U.S. customers. Crypto executives hailed them as a way to let people worldwide invest in Tesla, Nvidia, the SPDR S&P 500 ETF and other buzzy securities, especially in countries where it is difficult to buy U.S. stocks through a local brokerage.

"By tokenizing equities, we believe we can export U.S. capital markets anywhere in the world," said Gemini co-founder Cameron Winklevoss.

Tokenized stocks are part of a broader effort to rebuild traditional markets on the technology that underpins bitcoin and other digital assets. Investors can now buy tokens to bet on assets ranging from U.S. Treasurys to private-credit funds to shares of Elon Musk's SpaceX. Such experiments have proliferated in recent months as President Trump has installed crypto-friendly regulators and ended the Biden administration's enforcement-heavy approach to the industry.

Potentially, blockchain could accelerate the process of settling stock transactions, allow 24/7 trading and enable other innovation. But the new breed of tokenized stocks have sometimes resembled a buggy, version 1.0 product that investors should approach with caution.

On July 3, for instance, the price of AAPLX — a token tracking Apple — briefly jumped to $236.72, a 12% premium to where the stock was trading at the time, according to data provider CoinGecko. A similar token tracking Amazon surged to $891.58 on July 5, four times the stock's previous closing price, CoinGecko data shows.

The same token, AMZNX, suffered an even wilder dislocation on Jupiter, a peer-to-peer platform for crypto trading, early on July 3. Blockchain data shows that an unknown user trying to buy about $500 worth of the token briefly sent its price to $23,781.22, more than 100 times Amazon's closing price the previous day.

Such tokens, marketed as "xStocks," are issued by Backed Finance, a Switzerland-based company that partnered with Kraken and Bybit to debut dozens of stock-tracking tokens on June 30. Backed aims to keep xStocks in line with the underlying stocks by buying shares and creating new tokens, or redeeming the tokens and selling shares.

But with xStocks thinly traded across multiple crypto exchanges, they are susceptible to sharp price moves when users buy or sell more than the markets can handle. Such moves can be exacerbated when the stock market is closed on nights and weekends.

"We are actively tracking any of these price dislocations and engaging with exchanges to make sure they work to fix this and follow best practices to make sure this does not happen," a Backed spokesman said.

Robinhood debuted its tokenized stocks at a splashy June 30 event in France inspired by the 1955 Alfred Hitchcock classic "To Catch a Thief." To promote the launch, which is limited to European customers, the company conducted a free giveaway of tokens tied to the performance of OpenAI and SpaceX, neither of which is publicly traded.

OpenAI disavowed the tokens, tweeting: "We did not partner with Robinhood, were not involved in this, and do not endorse it." Lithuania's central bank, which regulates Robinhood's European arm, has said that it contacted Robinhood to ask the company to explain the tokens and how they were marketed to customers.

"We're confident in our program and are in contact with regulators to address any questions," a Robinhood spokesperson said. The brokerage's chief executive, Vlad Tenev, posted on X that Robinhood has been contacted by "many private companies that are eager to join us in the tokenization revolution."

Skeptics worry that tokenized stocks could become a way to circumvent oversight. In the U.S. stock market, exchanges monitor for manipulation and other abuses, while brokerages must know the identity of their customers. That allows regulators to probe suspicious activity and identify the people behind it.

But such controls don't necessarily exist with tokenized stocks. Backed's xStocks, for instance, are "permissionless," meaning they can be moved freely between different users and trading platforms. Some platforms, such as Kraken, maintain records on their customers, but xStocks can also be traded on anonymous platforms like Jupiter.

Backed says transactions on public blockchains are more transparent than those in traditional finance, making it possible to monitor and detect illegal activity. Still, other industry players worry that tokenized stocks being traded on anonymous platforms is a recipe for trouble. Such arrangements could facilitate abuses such as insider trading, said Carlos Domingo, chief executive of tokenization startup Securitize.

"It's a can of worms and it is going to explode at some point, because people will find ways to do something illegal with these tokens," Domingo said.

Write to Alexander Osipovich at alexo@wsj.com and Vicky Ge Huang at vicky.huang@wsj.com