Ondo Global Markets
Comparison to Other Tokenized Stocks

Comparison to Other Tokenized Stocks

How do slippage, liquidity, and price dislocations interconnect in tokenized asset markets, and why do they pose challenges for early tokenized stocks?

In tokenized asset markets, slippage, liquidity, and price dislocations are interconnected concepts that can significantly impact trading efficiency and price stability, so understanding their relationships is crucial for investors.

Let’s start by defining some terms. Liquidity refers to how easily an asset can be bought or sold without drastically affecting its price. (For example, if you were trying to sell your house within the next day, you’d probably have to sell it for a lot less than if you ran a normal sales process. This is one reason why your house is considered an illiquid asset.) In public markets, liquidity is often characterized by market depth (the volume available at various price levels), bid-ask spreads (the gap between buy and sell prices), and trading volume (how many shares are trading in a given time period). High liquidity allows for smooth transactions, while low liquidity creates vulnerabilities. In tokenized stocks, liquidity is often "recreated" onchain, separate from the deep pools in traditional exchanges like NASDAQ, leading to thin order books (e.g. having few buy or sell orders at various prices).

Slippage occurs when a trade executes at a worse price than expected, typically due to insufficient liquidity. For instance, say an investor wants to buy 10 shares of tokenized AAPL (Apple) and that the ‘headline’ price of a share of an AAPL token is $230. That might seem fine, but that $230 price only indicates the lowest price at which another investor might be willing to sell a single AAPL token; if the next investor isn’t willing to sell their other nine AAPL tokens for less than $300 (which is their right), then your cost to purchase ten shares might be (1*$230 + 9*$300) / 10 = $293 per token…a far cry from the “listed” $230 price. This is a direct causal effect: low liquidity causes high slippage by limiting the market's ability to absorb orders without volatility. In low-volume onchain markets, even small trades can amplify this, deterring participants and creating a feedback loop that further erodes liquidity.

Price dislocations, or mispricings, happen when the token's market price deviates from the underlying asset's fair value—such as a tokenized AAPL trading at a 15% premium over the underlying AAPL shares.

The cause of these dislocations is often a lack of arbitrage. Arbitrageurs normally correct dislocations by buying low and selling high. For example, let’s say that tokenized AAPL was trading on an exchange for $231, but was trading for $230 on another exchange. If there was a lot of liquidity — and if the transactions could happen quickly — an arbitrageur would simply buy the token for $230 on the one exchange and sell it for $231 on the other nearly instantly, and make a $1 profit with little risk. This type of dynamic happens in all kinds of financial markets and helps keeps prices consistent.

In many existing implementations of tokenized assets, however, high-friction minting and redemption processes (e.g., delays or costs in converting tokens back to underlying assets) prevent these type of quick interventions at low cost, and the low liquidity of the secondary markets (i.e. markets where the token is being traded directly, as opposed to the primary market where they are being minted and burned) means that arbitrageurs can’t easily do it there, either.

So now you can see the issue: Low liquidity and high-friction minting and burning lead to high slippage, which signals market inefficiency and discourages arbitrage, allowing dislocations to widen and persist.

So how do Ondo tokenized stocks address these issues?

Ondo tokenized stocks address these issues by enabling instant, low-cost minting/redemption and by inheriting liquidity from traditional markets. This allows arbitrageurs to align prices quickly and effectively, reducing token slippage and dislocations from day one.

How else are Ondo tokenized stocks different?

A few other key differences between Ondo tokenized stocks and some other tokenized stock implementations are that our assets are:

OverviewEligibility