Switzerland allowed Backed to avoid whitelisting xStocks. Tokenized Tesla shares have the largest supply. xStocks have roughly 30,000 unique holders.
Balancing compliance needs against the open and accessible nature of decentralized finance ultimately brought Backed Finance to Switzerland, according to co-founder Adam Levi.
The company was registered in the European nation because it allowed them to issue digital representations of stocks like Tesla and Nvidia, called xStocks, that are freely transferable, as opposed to those constrained by a so-called whitelist, he told Decrypt.
“We were looking into five jurisdictions, and lawyers told me, ‘Yes, you can do it. It will be permissioned with a whitelist,'” Levi recalled. “And I said, ‘No, I’m not interested. I don’t want to build it because I will not use it.”
In crypto, whitelists are typically used to grant individuals approval to participate in a specific event, whether that’s minting an NFT or investing in a cryptocurrency’s debut. Within the context of tokenized equities, one could dictate who’s allowed to hold the digital representations of stock.
Backed began issuing tokenized stocks under its xStocks brand in June, and as the company competes with similar offerings from retail brokerage Robinhood and tokenization platform Securitize, Levi argued that a permissionless approach is best for adoption.
“Think about a stablecoin being permissioned,” he said. “No one would use that.”
As of Wednesday, xStocks currently had 30,300 total unique holders, according to a Dune dashboard. Tesla’s associated token was the most popular, with 43,000 tokens tied to $18 million in Tesla shares — which serve as its backing.
That distinction is key. Some forms of tokenized stock are “native,” meaning that they carry the same entitlements that investors receive when purchasing stock through traditional means, but xStocks are essentially a wrapper for tokens that are held off-chain.
It’s similar to how most stablecoins function as an IOU for $1, Levi said. They are not issued by a central bank or government, so they are not dollars themselves. And xStocks can be redeemed for actual shares in a company for a fee.
“Were creating wrappers on top of stocks,” he said. “You’re not holding Tesla — that’s important — but you basically have a right to the economic value of Tesla.”
XStocks aren’t available in the U.S., and the tokens are issued under sweeping legislation passed by the Swiss Parliament in 2020. The legal framework is explicitly “innovation-friendly,” according to a fact sheet published by a Swiss government agency in 2023.
Regulators in the U.S. have raised eyebrows in relation to tokenization this year, with SEC Commissioner Hester Peirce saying in July that tokenization doesn’t trump existing securities laws. Companies like OpenAI have also denounced tokens tied to them as unauthorized.
Still, Levi thinks xStocks could see real adoption outside of the country, for similar reasons that have pushed people toward products from stablecoin issuers Circle and Tether.
“People around the world started using stablecoins as a way to run from inflation, and I think the same will [happen] for xStocks,” he said. “Bitcoin is very volatile, but if you want to have something that is safe and growing, the S&P 500 is a very good product.”
