Coinbase CEO Brian Armstrong has called for tokenized stocks to carry full backing from real securities as the exchange seeks to connect global investors with a U.S. equity market valued at more than $70 trillion.
Summary
- Armstrong said Coinbase’s stock tokens represent real securities rather than synthetic assets or debt instruments.
- Coinbase holds underlying shares through an offshore special-purpose company and a regulated U.S. broker.
- Verified holders can request redemption, while dividend proceeds are generally reinvested after taxes and fees.
- The products remain unavailable to U.S. persons and are not registered under the U.S. Securities Act.
Armstrong said in an X post that Coinbase has established a model for tokenized equities based on real shares, redemption rights and benefits tied to the underlying securities.
Rather than issuing synthetic products that track a stock’s price, Coinbase backs its public-equity tokens with corresponding shares held in custody, according to Armstrong. He added that investors can exchange eligible tokens for the underlying shares under the applicable regulatory process.
Coinbase has also added dividend functionality to the products and plans to introduce voting rights, Armstrong said. By combining those features with onchain transfers, the CEO believes the structure could help investors and institutions outside the country gain access to the U.S. stock market.
Coinbase tokenized stocks hold beneficial interests in shares
Coinbase introduced its first Base-native stock tokens on Aug. 24, offering eligible non-U.S. investors products linked to Apple, Nvidia, Meta and Alphabet. As crypto.news previously reported, the products trade under the AAPLc, NVDAc, METAc and GOOGLc tickers and use Base’s B20 token standard.
According to Coinbase’s launch materials, authorized participants buy the corresponding equities before the shares move into a segregated custody account. Coinbase described each token as a direct claim on a real share, saying the structure provides more than price exposure.
Coinbase Onchain SPV Ltd., a company incorporated in the Abu Dhabi Global Market, formally issues the securities. The official prospectuses identify Alpaca Securities as the broker and custodian responsible for buying, selling and holding the underlying U.S. equities.
Alpaca is registered with the U.S. Securities and Exchange Commission as a broker-dealer and belongs to the Financial Industry Regulatory Authority and the Securities Investor Protection Corporation. Under Coinbase’s structure, however, Alpaca holds the shares for the offshore issuing company rather than opening a standard brokerage account for every token holder.
Coinbase’s Nvidia prospectus describes each token as a proportional beneficial interest in a pool of deposited property. Legal title to the underlying Nvidia shares generally remains with the trust, meaning a token holder does not appear directly on Nvidia’s shareholder register merely by holding NVDAc in a wallet.
The prospectus also says the custodied shares are held in trust for eligible token holders. Subject to the validity of the trust under Abu Dhabi Global Market law, the deposited property would remain separate from the issuer’s assets if Coinbase Onchain SPV entered bankruptcy or insolvency.
Redemption depends on the holder meeting compliance rules
Verified users, described in Coinbase’s documents as “vested holders,” can request redemption for the underlying stock, U.S. dollars or a supported cryptocurrency such as USDC. According to the prospectus, the issuer charges a redemption fee of 0.05%.
Compliance checks apply before the issuer processes a request. Coinbase, Alpaca, and other service providers may review the holder’s identity, location, sanctions status and anti-money laundering information, while market settlement and the sale of any underlying stock may delay payment.
A redemption order also does not guarantee the value displayed when the holder submits the request. The prospectus warns that market prices may change while compliance reviews, settlement or share sales are taking place.
Users can acquire Coinbase stock tokens through decentralized exchanges without first completing the issuer’s full verification process. Coinbase’s documents classify such users as unvested holders until they satisfy the required conditions.
Unvested holders can transfer or trade the tokens in permitted markets, but the prospectus says the issuer will not recognize their redemption or voting rights. They cannot request delivery of the underlying stock or submit voting instructions until Coinbase’s tokenization entity approves their status.
Armstrong’s description of exchangeability therefore applies under the regulatory and contractual conditions set out in each product’s documents. Redemption is available as a product feature, but it is not automatic for every wallet holding a token.
Dividends are reinvested rather than paid directly
Coinbase’s prospectus says the issuer generally reinvests cash dividends received from the underlying company instead of sending the money directly to token holders. After buying more shares, the issuer adjusts the deposit ratio, increasing the amount of underlying equity represented by each token.
Taxes and fees reduce the amount available for reinvestment. According to the Nvidia filing, distributions to non-U.S. holders are generally subject to a 30% U.S. withholding tax unless a tax treaty provides a lower rate.
The issuer also charges a fee equal to 5% of the gross value of dividends or other distributions. Corporate actions, expenses and taxes can change the deposit ratio over time, so one token may not always represent exactly one whole underlying share after issuance.
Voting operates through an indirect process as well. The prospectus permits vested holders to submit instructions to the issuer, which may then try to vote the custodied shares on their behalf.
Unlike a conventional registered shareholder, a token holder does not necessarily send a proxy directly to Apple, Nvidia, Meta, or Alphabet. Coinbase’s filing says voting can depend on applicable law, available time and practical limits, while certain rights may be restricted or unavailable in some jurisdictions.
Galaxy Research has questioned Coinbase’s use of the phrase “a real share that you actually own,” noting that the same launch material describes the token as a direct claim on a share. According to Galaxy, Coinbase uses a third-party wrapper in which the holder’s legal relationship runs through the offshore special-purpose company rather than the business that issued the underlying stock.
Galaxy said it found no evidence that Apple, Nvidia, Meta or Alphabet had sponsored Coinbase’s tokens. Under a third-party model, the tokenization company’s terms determine how dividend, voting and redemption benefits pass to holders.
U.S. investors remain excluded from the tokenized stocks
Although the tokens track shares of American companies, Coinbase does not offer them to U.S. persons. Its prospectuses state that the securities have not been registered under the Securities Act of 1933 or with any U.S. state securities regulator.
Coinbase offers the products offshore under Regulation S, which provides a registration exemption for qualifying securities transactions conducted outside the United States. The product documents prohibit their offer, sale, or delivery inside the country or for the account or benefit of a U.S. person.
American customers can instead trade conventional stocks and exchange-traded funds through Coinbase Capital Markets, a separate FINRA-member brokerage operation. Coinbase says that service supports 24/5 trading and uses Apex Clearing for execution, custody and clearing.
The SEC has maintained that putting a security on a blockchain does not remove it from federal securities law. In its guidance on tokenized securities, the agency distinguished issuer-sponsored products from tokens created by unrelated third parties, which may provide beneficial ownership, a securities entitlement or only economic exposure.
Trading activity for Coinbase’s products has grown despite the U.S. restriction. On Sep. 13, Base trading data showed that tokenized-stock volume on decentralized exchanges had reached a daily record of $100 million.
According to Token Terminal, the category generated $730.9 million in trading volume over the preceding 30 days. Aerodrome processed $557.1 million, or 76% of the measured total, while Uniswap v4 handled another $139.3 million.
Coinbase later expanded the original four-token group with products linked to Amazon, Microsoft, Strategy, SanDisk, Tesla and privately held SpaceX. Base’s B20 standard supports issuer-set identity checks, transfer controls and other compliance restrictions across wallets and decentralized applications.
