In this episode of the Hypernest podcast, Alessio Zazzarini spoke with Toby, co-founder of ST0x, about ST0x tokenized stocks and the infrastructure behind their issuance, trading and use in DeFi.

ST0x began with a team that had already built advanced decentralized trading infrastructure. Around two years ago, the team decided to apply that technology to publicly traded assets, a market they believed could become one of the largest opportunities in tokenization.

The conversation covered how ST0x structures its tokenized assets, why redeemability sits at the centre of its model, how corporate actions work inside DeFi, and what it takes to support stock trading outside traditional market hours.

These were the main takeaways.

How ST0x tokenized stocks use redeemable claims

When the ST0x team began studying tokenized equities, one of its first decisions concerned the claim held by the token owner.

Toby explained that ST0x tokens are designed to give the holder a redeemable claim to the underlying asset on a one-to-one basis. In practical terms, the token is a separate security, but the claim is intended to lead back to the underlying share rather than only its cash value.

This decision influenced the legal and technical structure built around the product. The team developed its own tokenization infrastructure and claim framework, with S01 Issuer acting as the issuing entity.

Toby also explained that the term “share” can cover more than publicly traded equities. He said S01 Issuer can support tokenization structures for assets such as real estate, commodities and other forms of ownership. ST0x itself remains focused on publicly traded equities and exchange-traded funds.

The same underlying framework can therefore serve two roles. S01 Issuer issues the tokenized instruments, while ST0x focuses on their onchain trading and distribution. S01 Issuer can also support institutions working with other asset classes.

What tokenized stock holders actually own

A large part of the conversation focused on what investors actually hold when they buy a tokenized stock.

Alessio described a broad spectrum. At one end, a token may track the price of a stock or provide a contractual claim to its monetary value. At the other end, the token may connect more directly to the underlying security and its ownership records.

Toby described ST0x as a separate security with a claim that can lead back to the underlying share. He compared its structure to the chain of contractual claims that already exists in traditional brokerage accounts. A retail investor using a broker does not usually hold a paper share certificate in their own name. They hold rights through a chain of brokers, custodians and central records.

ST0x applies a similar idea through an onchain instrument. According to Toby, the holder has a claim that can be redeemed for the underlying share. This differs from structures where the holder’s final claim is limited to a cash payment based on the asset’s value.

The distinction also affects dividends and voting. Toby said ST0x supports dividend payments and is working on a model that could aggregate and forward voting instructions. He also noted that the token remains a separate security, so its terms do not simply copy every right attached to the original share.

For users, the practical question is what happens at the end of the claim. Can the holder receive the share, receive cash or only sell the token to another market participant? Toby described ST0x’s model as designed around the first path, subject to the applicable redemption terms and requirements.

Inside the ST0x tokenization infrastructure

ST0x does not treat tokenization as a process managed by one company inside a closed system.

Toby described an architecture where several roles participate in bringing assets onchain and keeping the system aligned. These roles include connectors and disconnectors, which move assets into and out of the structure, as well as independent auditors that compare onchain and offchain records.

The goal is to separate responsibilities and make the process more transparent. An auditor can review the records and publish an onchain result. If the audit does not complete successfully, the market can be frozen until the issue is resolved.

Toby said this structure allows multiple custody providers and institutions to connect to the same tokenization layer. According to ST0x’s current public materials, the issued asset tokens correspond to shares held with a regulated broker, while S01 manages the custody arrangement. ST0x itself is non-custodial and does not hold the underlying shares.

This model also matters for institutions that already hold assets with a large bank or broker. Toby said an institution may be able to transfer shares internally into an account connected to the tokenization structure instead of selling them, moving the proceeds into stablecoins and buying a tokenized version.

In that setup, the shares could remain within the institution’s custody environment while gaining an onchain representation. This could reduce operational steps and avoid unnecessary trading around the tokenization process.

Insolvency, redemption and legal structure

Alessio also asked what would happen if the issuing company failed.

Toby described S01 Issuer as a special purpose vehicle. A special purpose vehicle is a separate legal entity created for a narrow activity and is intended to isolate the issuer from unrelated business risks.

In an unwind, Toby said holders could redeem their tokens for the underlying shares and send them to their own brokerage accounts, subject to the applicable terms and redemption requirements. A holder who cannot redeem directly could also sell the token to a market maker that has access to the redemption process.

This distinction is relevant for users who acquire the asset through a decentralized exchange without completing KYC directly with the issuer. They may still have an exit through secondary market liquidity, while an authorised market maker completes the final redemption.

The effectiveness of any insolvency structure depends on the final legal documents, custody arrangements and procedures used during an actual failure. Toby’s explanation showed how ST0x intends the redemption and market making layers to work together during an unwind.

Dividends, stock splits and DeFi

Stocks change over time. They pay dividends, split, merge and sometimes move into a new security after an acquisition.

These events already require coordination in traditional markets. They become more complex when the tokenized stock is held inside an automated market maker, lending protocol or collateral position.

ST0x offers both a tokenized version and a wrapped version of each asset. A holder of the tokenized version can receive a cash dividend. The wrapped version reinvests the dividend, so the value increases without sending a separate payment to the holder.

The wrapped version is designed for DeFi use. If the asset sits inside a liquidity pool or lending market, the protocol does not need to manage a separate cash distribution. The economic value remains inside the token.

Toby said ST0x uses the wrapped version as the main asset for onchain distribution. Users can still wrap or unwrap through the interface, but liquidity efforts are concentrated around one version to limit fragmentation.

Stock splits require a different process. ST0x uses oracle infrastructure to tell protocols when a split has occurred and how balances or prices should change. An oracle is a data service that delivers offchain information to a smart contract.

Lending markets and other DeFi protocols still need to recognise and act on that information. Tokenized stock issuers can provide the data and tools, but protocols must also support the new asset class correctly.

Mergers and acquisitions can require a temporary market pause, a payout or a move into a new ticker. Toby’s explanation showed that corporate action support is part of the core token design rather than an administrative task added later.

Trading tokenized stocks outside market hours

Tokenized stocks can trade onchain outside traditional exchange hours, but the underlying shares still depend on traditional market liquidity.

Toby explained that most current liquidity relies on a bridge to traditional markets. When the underlying exchange is open, market makers can use that liquidity to keep token prices aligned and manage inventory.

The problem appears overnight and during weekends. The underlying market is closed, so there is no active reference market where a liquidity provider can immediately hedge a position.

Toby said T0, the market-making entity supporting ST0x markets, manages this risk by widening spreads. The spread is the difference between the price at which a market maker is willing to buy and the price at which it is willing to sell. Wider spreads compensate the liquidity provider for the additional risk of trading without access to the underlying market.

The size of the spread can change by asset. A broad equity index or short-term Treasury fund usually moves less than a volatile individual stock, so the risk profile is different. Inventory and current market conditions can also affect the price quoted by a market maker.

This means 24/7 access does not guarantee the same execution quality at every hour. The market can remain open, but the cost and depth of trading still depend on the underlying asset and the ability of liquidity providers to manage risk.

ST0x’s three layers of onchain liquidity

For Toby, the next major challenge is onchain liquidity.

ST0x uses a combination of its bridge, order book, decentralized exchanges, lending markets and intent-based execution. An intent is an onchain order that describes the result a user wants, while leaving the execution path open to a solver or market maker.

Toby described three levels of liquidity.

The first covers assets with liquidity across the ST0x order book and external DeFi venues. These markets can support more direct execution and arbitrage.

The second covers assets where liquidity exists mainly through the order book and the bridge to traditional markets.

The third covers assets without standing onchain inventory. A user can still submit an intent, and an authorised participant can source the asset through the bridge while the underlying market is open.

This structure is intended to help ST0x scale beyond a small number of heavily traded stocks. Deep liquidity cannot exist in every asset at all times, especially when the platform expands into more countries and exchanges. Intent based execution gives users access to a wider market without requiring permanent liquidity in every pool.

ST0x also works with external solvers. When price differences appear between its order book and other DeFi venues, independent market participants can identify the opportunity and complete the trade without a central operator assigning the order.

Open onchain markets and institutional access

The conversation also covered the difference between public markets and permissioned infrastructure.

Toby said ST0x can support institutions that want controlled environments with KYC, KYB and restricted access. S01 Issuer can provide the issuer infrastructure for those use cases.

The longer term vision for ST0x is more open. Toby sees KYC and AML controls at the points where money enters or leaves the system, while public onchain markets remain accessible to wallets and developers.

This approach allows a protocol to integrate the asset without asking the issuer for permission. It also allows liquidity to move between applications instead of remaining inside one platform.

Toby contrasted this with private blockchain environments where smart contract changes and participation may require approval. Those systems can fit institutional requirements, but they place more limits on developers and open market activity.

For ST0x, public infrastructure is important because liquidity grows through connection. The team wants to link different custodians, institutions, market makers and DeFi venues through one onchain market rather than create another isolated trading system.

What comes next for ST0x tokenized stocks

ST0x currently focuses on publicly traded assets and exchange-traded funds, but Toby expects the available market to expand.

He said the team is working toward European and Asian assets through relationships with additional custody and brokerage providers. This would give onchain users access to markets beyond the United States.

At the same time, Toby said S01 Issuer is speaking with institutions that want to test tokenization in other asset classes. He described the ideal early client as a large institution that wants to begin with a controlled experiment but has enough assets to make the test meaningful.

ST0x provides the live market example. It shows how tokenized assets can move through an order book, decentralized exchanges, lending markets and liquidity pools. S01 Issuer can then use that operating experience when supporting institutional clients.

Toby said ST0x’s longer-term goal is for banks, fintech companies and other Web2 platforms to use onchain markets without presenting blockchain as the product. The user should see fractional access, wider market hours and secure infrastructure, while the technical layers remain in the background.

The conversation with Toby shows how ST0x tokenized stocks are being designed as part of a wider market system, covering redeemable claims, custody, corporate actions, 24/7 trading and onchain liquidity. Watch the full Hypernest podcast to hear how the team plans to expand market access and connect tokenized equities with DeFi.

Build with Hypernest

Hypernest partners with early-stage DeFi, RWA, and Web3 infrastructure founders building the next generation of financial markets.

If you are building in DeFi, RWA, or Web3 infrastructure, apply to work with Hypernest.