WEB3 Mint To Be Podcast - STO and US Stock Tokenization

Guest: Min Dao, founder of dForce

Host: Alex, Research Partner at Mint Ventures

Recording time: 2025.3.14

Alex: In this episode, we will follow up on a cryptocurrency narrative that drew much attention a few years ago, then gradually cooled down, but has recently heated up again: STO, or security tokenization, especially in relation to the tokenization of US stocks. Today, we have a guest who has rich experience in both traditional finance and the DeFi space, and he is also an old friend of our show—Mr. Mindao. Let's have Mr. Mindao say hello to everyone.

Mindaos: Hello everyone, I am very happy to be here again to discuss the topic of STO and securities tokenization with you all.

The ins and outs of Coinbase stock tokenization

Alex: The resurgence of STO as an old narrative mainly stems from the statement made by the CEO and CFO of Coinbase last week, where they mentioned the intention to restart the tokenization of Coinbase stock. I believe you have also noticed this news. Based on the information you have about the events, could you help us outline the ins and outs of the tokenization of Coinbase stock, including some key details?

**Minda: **Actually, the topic of Coinbase tokenization was not raised this year; I remember it being mentioned in 2020. However, due to the extremely harsh regulatory environment for the crypto sector and Coinbase's subsequent lawsuit by the SEC, I recall Brian mentioning this concept after 2020, but it had not been implemented since then. At the time of Coinbase's listing, there was still debate within the community about whether to go public or issue a token. Being a cryptocurrency exchange, there were controversies about whether it should directly issue a token on-chain. This topic was brought up in January of this year by Jesse, the head of Base, who suggested considering deploying Coinbase's token on the Base chain. Then in February, the SEC dropped the lawsuit against Coinbase, which also reflects a new government's friendly attitude towards crypto, and I think it is a concrete manifestation of that. Throughout this process, even the CFO and CEO mentioned the plan to tokenize stocks and issue them on Base. Looking at the entire timeline, I think it is very solid. After the new government took office, its attitude towards crypto changed, including the crypto summit, which Coinbase's CEO also attended. Therefore, we can see that when the entire regulatory environment changes, it is very understandable for the largest exchange in the U.S. to take such action, and the timing is very fitting.

The value proposition of stock tokenization

Alex: In your opinion, what are the main value propositions of STO or the tokenization of stocks, if we consider it a product? Do you think it has a relatively organic value proposition? If a large amount of US stock assets are brought on-chain, what kind of chemical reactions might it have with current DeFi products?

**Minda: ** Yes, in fact, the topic of tokenization of stocks is not a new one; it has been mentioned in the past two cycles. I remember that in 2017, there was talk of STOs, so this concept has been around for quite some time. The reason why this topic has resurfaced in this cycle is due to several factors. On one hand, we can see that while the crypto space has stagnated due to regulatory reasons, there has actually been significant progress in the application of blockchain technology in the interbank systems within traditional finance on Wall Street. From a traditional finance perspective, it has also recognized the benefits of tokenization for traditional financial institutions. For example, a large bank has processed many of its interbank settlement systems through tokenization and Tokenization. This essentially saves banks a lot of settlement time. For instance, even within the same bank, cross-state or cross-country settlements can take several days or even a week. However, with blockchain, settlements can be done immediately. The direct benefit is that the amount of capital tied up is reduced, and the cost of capital is greatly lowered, so traditional financial institutions can see where the advantages lie. Then, looking at the overall tokenization of stocks, from a purely capital channel perspective, it certainly transforms from a single market into a global market. This involves both non-permissioned and permissioned systems. However, there are many conflicting issues because traditional securities regulation follows the principle of territoriality: the U.S. market has its own set of regulations, and the Chinese market has its own regulations, with each region adhering to the principle of territoriality. But when we connect to the crypto public chain market, how to handle this principle of territoriality becomes a very significant conflict. This is also why tokenizing stocks, to some extent, can be seen as the Berlin Wall coming down. How does capital from the free world reach a stock market regulated by territorial principles? This involves many conflicts. However, for companies conducting STOs and for stock exchanges, at least it transforms the entire capital channel from a regional market into a global market, which is a crucial point for most companies engaged in STOs.

The issue we are discussing regarding Coinbase is quite different from the general tokenization of stocks. This is because Coinbase itself is an exchange. In fact, the stock of Coinbase can be compared to the native tokens of a large exchange. The native token of a large exchange is actually a very good example of tokenized stock, while Coinbase is purely the stock of an exchange. However, we can see that the native token of a large exchange has far more utility than Coinbase. From the perspective of traditional stock, Coinbase is simply a shareholder's equity, a shareholder certificate. But we see that the native token of a large exchange can be used to offset transaction fees in its trading market, can be used to claim airdrops, and has various other functions. So I think the biggest significance of Coinbase issuing stock lies not just in tokenizing a stock and placing it on the chain, but in empowering traditional stocks. I see it as a movement to expand rights. In the past, it was a shareholder certificate; now let's take a simple example: if Coinbase tokenizes your stock and places it on the Base chain, and in the future, Base can hypothetically use Coinbase's stock as collateral for staking, for node validation, or for gas payments, then the stock is no longer just a shareholder certificate but something with utility. If we expand Coinbase's case to others, say Disney or Netflix, if you hold a tokenized stock of Disney, you can get discounts on tickets. Why can't this be done in traditional finance? Because it is too complex without tokenization, and it is very difficult to integrate all these systems. But we can imagine that if Disney tokenizes its stock, in the future, users who have its stock can use the tokens directly to buy tickets at a discount, and even enjoy some preferential benefits. Or for Netflix, its subscription could be based on your stock staking; for example, the more stocks you stake, the more subscription discounts I can provide you. For instance, tokenizing a coal mining enterprise may not seem to have any practical value. However, companies like Coinbase, Netflix, and Disney inherently interact a lot with users at the product level, and I think their stock tokenization has a great possibility of transforming stocks from pure shareholder certificates into utility certificates. This is what I believe is a very important point of the integration of STOs with the crypto space, rather than merely turning it into a stock and placing it on the chain. This goes back to what I said earlier, which might be to expand the market for the funding pool, from a regional market to a global one. But we now know that the U.S. already occupies a very large share of the global financing market. What significant meaning would adding such a market on-chain have? Perhaps not much. This is why you see that many STO tokens have not had much trading volume on-chain over the past few cycles, as the traditional market has already satisfied the investment demands of most people with funding needs.

Alex: The concept of stock expansion just now seems very novel and reasonable to me. Continuing along this topic, you just mentioned that after a certain large bank adopted a blockchain settlement system, it improved the efficiency of fund utilization. I have a technical question: the system used by this large bank should be something similar to a consortium chain. Specifically, what technical designs can enhance its fund efficiency or the operational efficiency of the system? I've always been quite curious about this.

Min Dao: Everyone knows that banks are considered dinosaurs in the tech industry. Many of the traditional backend systems of banks are built on technologies from decades ago. Of course, I believe that for financial institutions, maintaining this conservative technological approach makes sense. Firstly, it involves money, so older, more proven technologies may be more important for the security of banking systems than enhancing capital efficiency. Even within the same bank, settlement and clearing between different systems can involve many issues, and it becomes even more complicated across countries. For example, in a large bank, the financial regulations involved in the U.S. and the U.K. differ, and it requires using SWIFT or other external settlement systems, not just internal to the bank. Settlements between branches of a bank in different countries also face delays due to different regulatory issues. For instance, in a large bank, merely settling between banks, when expanded to a consortium chain, domestically, in the Greater Bay Area, a few years ago, a certain bank formed a supply chain alliance with several core banks in that region to use a blockchain system for settlements. It becomes more complex between different banks, as each bank's system design is unique. The advantage of blockchain is that it uses a single ledger, and this ledger maintains consistency across all states, eliminating the need for each bank's different backend systems to match. Why do we see such good applications in the financial sector? Because traditional finance can see that blockchain design can essentially completely replace the existing banking infrastructure. This is also why stablecoins gained rapid adoption as soon as they emerged. Of course, this started from wild growth, and ultimately, banks and U.S. regulators are most vigilant about stablecoins. Traditional finance recognizes that it has clear advantages over settlements between traditional banking systems.

Interaction between US Stocks on the Chain and DeFi

Alex: Understood. If a large number of these US stock assets are put on the blockchain, what kind of interactions do you think might occur between them and our existing DeFi projects? Are you optimistic about this, or do you think it is important for the development of the industry?

Mindow: I think the most critical point for the infrastructure of DeFi is that we see the projects doing DeFi in the entire crypto space, such as those creating DEXs, lending, and stablecoin projects. The upstream assets they rely on are still mostly native to the crypto space, like ETH and BTC, as well as trading and Meme-type assets, which also belong to the native part of crypto. Therefore, for the entire DeFi infrastructure, it simply depends on what kind of upper-layer assets there are, and I will support what kind of assets. As for the downstream DeFi infrastructure, this is certainly a benefit. For example, after stablecoins entered, we see that not only stablecoins are involved, but the largest scale of STOs currently is the tokenization of government bonds. Moreover, we see that this cycle has produced very noticeable results in the tokenization of government bonds, including certain decentralized stablecoin projects and certain RWA projects, etc., all of which are placed on-chain. We can see that the tokenization of government bonds has brought a large amount of so-called yield-bearing assets to DeFi protocols, including many pools in certain AMM protocols and certain DEXs that are now yield-bearing asset pools. In terms of liquidity, RWA-type stablecoins and RWA assets actually provide very important liquidity for the entire DeFi ecosystem. So we can imagine that further tokenization of stocks is similar; the advantage is that now the entire DeFi infrastructure is well-established, whether in the form of AMMs,