Tokenized Nvidia Share Trades Beyond Market Hours, CEO Highlights Benefits of On-Chain Markets

The recent trading of Nvidia’s tokenized stock showcased a remarkable moment in blockchain finance. Unlike traditional markets, where trading halts after hours, the tokenized version kept active, allowing for price adjustments based on earnings reports before investors on Wall Street could react.

During a Thursday livestream on Unchained, Alex Cutler, CEO of Dromos Labs, which powers the Aerodrome exchange on Coinbase's Base network, explained how the tokenized stock continued trading after the Nasdaq closed. He reported significant volume and price movements occurring while traditional markets were offline. “The stock market closed at a particular price,” Cutler noted, emphasizing that “on-chain markets continued to operate,” which led to a noticeable price increase.

Nvidia announced its second-quarter earnings on August 26, surpassing expectations with $2.22 per share on revenues of $96.2 billion and guiding projections of approximately $108 billion for the upcoming quarter. Following the announcement, Nvidia shares had closed at $209.66, a downturn of 1.59%, before experiencing a roughly 5% surge in after-hours trading, reflecting the enthusiasm captured by the tokenized version.

Price Discovery During Downtime

The ongoing conversation about the effectiveness of tokenizing stocks often pivots on the concern that they might diverge from actual share prices when markets are closed. However, Cutler views this as an intentional feature rather than a flaw. “Price dislocation while markets are closed is part of the market’s functioning,” he stated. He described the recent trading activity as a form of market discovery, where on-chain participants were trying to anticipate the opening prices based on the most current data.

Before the earnings announcement, liquidity providers were already positioning themselves on various sides to capitalize on potential price shifts, with the range of prices narrowing as expectations settled. Cutler underscored that the programmability and composability of tokenized stocks make them superior to traditional shares, highlighted by the range of decentralized finance (DeFi) protocols integrated at launch, including Aave, Morpho, and Euler.

Challenges with Weekend Trading

Nonetheless, Cutler faced difficult questions about liquidity and pricing during market downtimes. Laura Shin, the livestream's host, pointed out that price feeds rely on Chainlink oracles, which currently operate on a 24/5 basis, creating potential gaps during weekends. This lack of consistent pricing could lead to significant discrepancies as markets reopen on Mondays. “What happens to anyone using the tokens as collateral?” she asked, addressing valid concerns surrounding reliability in price stems.

Cutler acknowledged these gaps but remained optimistic, suggesting that continuous oracles could be operational “very soon.” He articulated that lending markets could one day rely on on-chain liquidity pools rather than off-chain sources, contingent on those pools reaching sufficient depth for reliable liquidations.

Tokenized Stock Landscape

Coinbase commenced its journey into tokenized stocks by launching shares of Nvidia, Apple, Meta, and Alphabet on August 24. Each token corresponds directly to shares held by a regulated custodial entity, emphasizing tangible ownership, opposed to previous synthetic iterations. “Every token that you see today is backed one-for-one by an actual share,” Cutler asserted.

As for market share, Cutler estimated that Aerodrome holds around 25% of automated market maker volumes for these newly tokenized assets, translating to approximately $25 million in the past 24 hours and around $80 million since inception. Notably, these figures align reasonably with public pool data, which showed Nvidia's pools traded close to $19.5 million over the same period.

Despite the promising indicators, the overall trading volumes are still relatively modest compared to the broader stock market they aim to capture, and U.S. investors currently can't access the tokens. Cutler projected that any forthcoming SEC guidance will align well with Coinbase’s existing framework, where tokens operate permissionlessly, while shareholder functions like voting are gated by identity checks. Such insights, drawn from unnamed sources within the agency, cannot be independently verified.

Looking ahead, Cutler hinted at the imminent inclusion of more assets in the tokenized realm, stating, “By this time next week, there will be a lot more, I guess, is what I can say.”

The industry is buzzing with activity, challenged by competitors like dYdX Labs, which just launched leveraged stock and crypto tokens, while a joint venture between ICE and OKX aims to tokenize equities. These movements signal a burgeoning race to dominate the tokenized equity market.

Related Listen: Should Tokenized Stock Only Come From Issuers? Yes, Says Carlos Domingo