Tokenized stocks face 24/7 pricing gap: RedStone COO

The SEC has opened permissioned onchain trading to fully backed U.S. stock tokens, but the 32.5-hour trading week on NYSE and Nasdaq leaves automated markets without a live reference price for most of each 168-hour week. Summary SEC relief permits qualifying tokenized U.S. stocks to trade through permissioned automated market makers. RedStone’s COO said nights, weekends and holidays could allow pricing gaps to build. Synthetic products remain outside the exemption, creating two token classes tied to the same shares. The five-year relief requires issuer notice, equivalent shareholder rights and coordinated trading halts. The SEC’s temporary exemption allows qualifying venues to bring buyers and sellers together through permissioned automated market maker pools for tokenized National Market System stocks. Under the order, each token must provide the same rights and privileges as an equivalent class of conventional stock. The SEC also placed limits on the number of available symbols and trading volume, while requiring public, auditable smart contracts deployed on permissionless blockchains. Trading venues must stop onchain activity whenever the primary exchange halts the underlying stock. Ordinary closures at night, on weekends or during holidays are treated differently, leaving tokenized venues able to operate when NYSE and Nasdaq are not producing live prices. You might also like: Morpho adds USDC lending for five Coinbase tokenized stocks Tokenized stocks lose their main price reference after hours Marcin Kaźmierczak, co-founder and chief operating officer of blockchain oracle provider RedStone, told crypto.news that the missing reference market presents a more serious problem than liquidity fragmentation or arbitrage alone. An automated market maker sets prices from the assets held in its own pool. Arbitrage traders can correct a price difference by buying in the cheaper market and selling in the more expensive one, but Kaźmierczak said the process weakens when the main U.S. equity market is closed. “An AMM only prices off its own pool, arbitrage keeps that honest but only while the reference market is open, and NYSE/Nasdaq trade about 32.5 hours a week out of 168.” During regular U.S. trading hours, market makers can compare an onchain token with the underlying share and trade away gaps. Overnight or during a weekend, however, the stock’s deepest venue is not publishing a current executable price. At such times, an AMM may react to orders placed inside a much smaller liquidity pool. Large trades can move its quoted price even when investors cannot immediately buy or sell the underlying share to complete the other side of an arbitrage transaction. The challenge does not fade as activity rises, according to Kaźmierczak. Higher order sizes can increase the price impact of each AMM transaction, while the number of hours without a live primary-market reference stays unchanged. “It gets harder, not easier.