Tokenized stocks need more than 24/7 trading to solve liquidity problem, Gravity Team CEO says

Tokenized stocks need deeper liquidity and reliable redemption mechanisms to support large trades, as round-the-clock trading alone cannot overcome the risks market makers face when traditional stock exchanges are closed, according to Gravity Team CEO Mārtiņš Beņķītis.

In a written interview with Crypto Briefing, Beņķītis said liquidity providers must commit capital to absorb trades during weekends and overnight sessions, when the underlying shares cannot always be bought or sold to hedge their exposure.

A large order in a tokenized stock can therefore move prices significantly if there is insufficient capital on the opposite side of the trade.

“Prices can reflect new information during the weekend. Making those prices usable for larger transactions requires funded capacity to take the other side,” Beņķītis said.

The liquidity challenge was also highlighted in an October report from the International Monetary Fund, which found that tokenized equities remain significantly less liquid than traditional stocks and exhibit approximately 1.5 times their realized volatility.

The IMF attributed part of the difference to continuous trading during lower-volume overnight and weekend periods, when prices can deviate more sharply from those of the underlying shares.

Redemption mechanisms remain critical to tokenized stock liquidity

Beņķītis said the ability to create and redeem tokens against their underlying shares is essential for market makers to maintain liquidity and limit price differences between traditional and blockchain-based markets.

When a token trades above the price of its underlying stock, an authorized participant may be able to purchase shares and create additional tokens to help close the gap.

However, the process depends on having sufficient capital, predictable settlement arrangements and access to the underlying securities.

“A market maker’s ability to keep providing liquidity depends on how reliably that cycle works,” Beņķītis said.

The challenge becomes more pronounced when conventional stock markets are closed, leaving liquidity providers to hold inventory or maintain alternative hedges until trading resumes.

While tokenized assets and stablecoins can settle onchain at any hour, converting tokens back into traditional shares or bank deposits remains dependent on redemption rules and conventional settlement systems.

Beņķītis said weekend payments in fiat currencies may also require additional prefunding, limiting the efficiency gains from blockchain settlement.

The costs can be higher in emerging markets, where investors must first obtain dollar stablecoins to purchase tokenized securities.

Using Indonesia’s rupiah as an example, he said foreign exchange availability and local payment restrictions can create premiums or discounts on stablecoins, adding another layer of cost.

Tokenization could expand access to international financial markets, but the actual cost of investing would still depend on local banking arrangements and available liquidity.

Corporate objections to OKXICE climb to 38

The liquidity concerns come as more publicly traded companies object to having their shares represented on OKXICE, the proposed tokenized stock venue backed by crypto exchange OKX and New York Stock Exchange parent Intercontinental Exchange.

Walmart, Eli Lilly, Carnival, Arcos Dorados and Cigna were among the latest companies to object, bringing the disclosed total to 38, according to an October 29 CoinDesk report.

The objections follow an earlier wave involving JPMorgan Chase, Coca-Cola, Dell Technologies and other major companies.

OKXICE plans to offer around-the-clock trading in tokenized US equities with stablecoin settlement under the Securities and Exchange Commission’s Innovation Exemption.

Under the framework, companies have 30 days after receiving notice to object to having tokenized versions of their shares traded on the platform.

Beņķītis said issuer acceptance will influence how far the venue can expand, although he cautioned against assuming that companies share the same concerns.

He also declined to attribute the objections to cryptocurrency’s reputation, noting that issuers have not publicly disclosed their individual reasons.

Instead, he emphasized the importance of clearly explaining token backing, ownership rights and redemption procedures to both companies and investors.

“Confidence builds when the product behaves as described, including when a holder wants to redeem or exercise a right,” Beņķītis said.

Gravity Team, founded in 2017, says it has processed more than $500 billion in cumulative spot trading volume and maintains connections to more than 40 cryptocurrency exchanges.