GoTycheThe argument over Robinhood’s AMC token has been about which tokenization model is legitimate, and the SEC has drawn a line. The question to ask now is what has to be true for any of it to be a market, argues Bullish’s Tram Doman.
The stock token debate, and the gap nobody can close alone
The argument over Robinhood’s AMC token has been about which tokenization model is legitimate, and the SEC has drawn a line. The question to ask now is what has to be true for any of it to be a market, argues Bullish’s Tram Doman.
AMC CEO Adam Aron called Robinhood's tokenized AMC shares a "quasi-fake market" and threatened legal action. Robinhood’s Vlad Tenev pushed back, saying a public company does not get to approve every product built on its stock.
In the wake of their social media dust-up, an argument over which kind of token is legitimate has ensued: a wrapped token, which is a claim on the underlying share, or an issuer-sponsored token registered with the transfer agent. The SEC issued a view on Sept. 17, granting a five-year exemption that lets tokenized U.S. stock trade onchain in the U.S. only where the token carries the same dividends, votes and class rights as the share. Synthetic exposure like Robinhood’s tokenized stock is excluded.
The AMC token on Robinhood
Across seven sessions between August 31 and September 9, Robinhood’s AMC token closed within 0.87% of AMC’s NYSE close price at the median, and 2.71% at the widest, as measured in the Uniswap pool that carries around 95% of its trading. While the underlying market is open, the price remains largely aligned.
However, a different picture emerges when the underlying market is closed. Leading up to midnight on Thursday, September 3, Robinhood’s AMC token went from $2.55 to as high as $23.16, which is nine times the $2.54 AMC had closed on NYSE seven hours earlier, before coming back down to $3.26 within the same hour. Volume through the pool during the hour was $10.5 million.
Wrapped tokens such as Robinhood’s AMC are often structured as claims against offshore issuers, which collateralize the tokens with the underlying shares. Theoretically, if the issuer ensures that underlying stock positions and the claims are matched 1:1, the price should align, but in practice, the two instruments are traded separately and can thus diverge. Arbitrageurs, such as high-frequency trading firms and market-making desks, step in to keep markets in line, lock in arbitrage profits, and close any dislocations. The same mechanism keeps depositary receipts aligned with their underlying shares, and ETFs with their net asset value.
In Robinhood’s case, however, the Jersey issuer names only one authorized participant able to create and redeem. The spike fell well inside the hours when it was permitted to do so, but the participant did not mint or burn any tokens at the time. Onchain data shows 47 mints on Friday, Sept. 4, every one between noon and 7 p.m. ET, comfortably inside the cash session, half a day after the token had depegged and recovered.
In a functioning market, a dealer can sell short or sell from their own inventory to capture the premium and replenish later. With no infrastructure to borrow tokens, the only way to access new tokens is pre-funding with the issuer. That means buying the share first, but if the NYSE is shut, the broker would have had to buy before market close. Hedging that exposure costs capital for a premium capped by how much the onchain pool can absorb. It’s a proprietary bet with the firm’s capital, not arbitrage.
At the issuer level, minting without a share would leave the issuer owing shares it has not bought, carrying risk on its own book until the opening bell, which is not palatable for an instrument that is distributed under the premise of full collateralization.
So, the sellers that brought the spike down were holders taking profit. The money circulated inside the token market; no actual shares changed hands. Nobody was arbitraging; everyone involved was making a directional bet with their own capital at risk.
None of it had anything to do with the actual AMC share. Hours after Aron's post, a memecoin launched, quoted in tokenized AMC. As demand for the meme token rose, the pool sold AMC tokens to buy it, taking the stock token’s price with it. An instrument built to reference a share in a cinema chain was priced by demand for a memecoin. Every downstream consumer of that price inherited a number generated by unrelated speculation.
To limit the effects of price dislocations on the underlying stock, the SEC’s exemption caps onchain trading at 0.25% of the large-cap stock's average daily volume, and 2.5% for all other listed stocks. Wrapped tokens issued offshore to non-U.S. holders, Robinhood’s included, fall outside SEC jurisdiction and carry on as is.
The wrapped token
Wrapped tokens have demonstrable utility, especially in emerging markets where access to US equities is restricted or expensive. Robinhood's Stock Tokens cover more than 190 companies across 120 countries; xStocks and Ondo do the same job through different plumbing. Outside the U.S., the model requires no agreement from the issuer, no entry on the shareholder register, and no authorization in each market. That is the source of its reach, and of the counterparty risk the holder carries.
The wrapped token expands distribution at the expense of potential dislocations from the underlying price, as well as investors’ rights and issuer transparency. The constraint is not Robinhood's schedule, or any other issuer's. In reality, price discovery does not stop when the NYSE or Nasdaq do; many brokers, retail and institutional, remain operational off-hours and accepting order flow from takers on- and off-shore of the U.S., hedging out their risk with overnight venues and derivatives. However, the ability to source the underlying shares in size is severely diminished when the primary exchanges are closed. So the holder has a claim but no market to convert it outside of the NYSE’s regular session, which runs only 32.5 out of 168 hours in a week. Outside market hours, the premium between the token and the share's last close is a risk the buyer carries and pays for when the price converges at the open.
The issuer-sponsored token (IST)
The issuer-sponsored model tokenizes the registered share, with the issuer and its transfer agent involved in the transaction. In addition to all the 24/7 and programmable benefits that a wrapped token offers, the IST is the security, with voting rights and corporate actions.
That changes the risk market makers are asked to carry. Quote a wrapped token at 3 a.m., and your inventory is a claim on a share, with no live price to reference. Quote an IST and the inventory is the security itself: the print is a transaction in the stock. That does not automatically make any price informative; a thin book at 3am is still a thin book. What it removes is the conversion risk between two different instruments and the counterparty risk of the intermediaries in between.
What the IST doesn’t gain is reach outside its own regulatory perimeter, in contrast with the wrapper. The wrapper's distribution comes from being a different instrument in a lighter regime; the IST’s integrity comes from being the share itself. Today, however, ISTs are few and far between. Only a few names trade, Bullish’s BLSH included, and liquidity is thin.
Maturing the market
The AMC argument has been about who is allowed to issue a stock token onchain. The harder question is how to build a market beyond issuance. The depth of the wrapper market is bounded by a gated conversion between two different instruments keeping two different clocks. The IST removes that bound: with the right infrastructure, genuine price discovery can happen at any hour, on any licensed venue, by a permitted class of participants rather than a handful of appointed firms.
The issuer-sponsored token serves the regulated market; the wrapped token gives exposure to those outside it. Run both at once, and both benefit. The wrapper market gets the two things it lacked at 11 p.m.: a live price reference, and an instrument a market maker can arbitrage against. The issuer-sponsored market gets flow from arbitrageurs holding the tokens as inventory to make markets in wrapped tokens. Collateralize the wrapped token with an IST, and the creation and redemption sit on the same rail, settling in seconds, no longer depending on the cash market to source shares. That is when the two stop trading as separate markets and start being parts of the same infrastructure, serving different use cases.
The conversation should now focus on how to narrow spreads for market participants trading at 3 a.m., how to shorten the conversion between different instruments, how to clear a continuous market, and who builds the plumbing in between.
No one firm can build the entire infrastructure needed. Exchanges, brokers, fund managers, market makers, transfer agents and clearinghouses each hold one piece, and none holds enough alone. Getting them into the same room to build a market is the key objective industry groups like the IST Coalition are trying to achieve.
Note: The views expressed in this column are those of the author and do not necessarily reflect those of CoinDesk, Inc. or its owners and affiliates.
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