It is believed that in many countries around the world people are more likely to own an iPhone than to have access to Apple stock. This highlights a significant barrier to financial market accessibility, especially when built on traditional financial infrastructure. Backed, a European Union (EU) regulated issuer of tokenized stocks, is looking to remove these barriers, making capital markets more accessible and equitable through the power of tokenization.
Recently, we spoke with David Henderson, Backed’s Head of Growth, about their mission, xStocks integration with Alpaca, and future growth plans.
The Founding of Backed: A Vision for Tokenized Finance
Backed was founded during the pandemic by Adam Levi, Roberto Klein, and Yehonathan Goldman who were envisioning what was next for blockchain and crypto beyond stablecoins. The answer: tokenized stocks, equities, and other financial products.
This started a rigorous research and development process, focusing on determining the best jurisdictions for the product while achieving regulatory compliance within decentralized finance (DeFi) infrastructure. “Backed has always put compliance and regulatory stringency at the very top of our priority list to make sure that while tokenized assets are DeFi compatible, they can also be sold by regulated and licensed venues," explains David.
This commitment to working within established regulatory frameworks, particularly in the European Union, differentiates Backed in the rapidly evolving tokenization space. With their fully regulated xStocks product, they’re looking to work with other regulators around the world to show why their model is effective and can help give proper investor protection through the whole process, rather than providing only temporary regulatory workarounds.
Beyond regulatory compliance, their mission to make capital markets more accessible and equitable stems from a profound understanding of existing inefficiencies. In emerging markets, the traditional financial infrastructure is outdated, expensive, and complex. This makes it incredibly difficult for individuals to participate in wealth-building opportunities available in developed markets.
David illustrates this disparity: "in many countries where consumer goods like iPhones are made, it's easier to buy an iPhone than to buy a stock in a share of Apple. The infrastructure in these countries is outdated and expensive in such a way that it makes it extremely difficult to do so."
With the recent announcement of xStocks, Backed is increasing accessibility to emerging markets while also removing the financial barriers created by traditional infrastructure. Now, with tokenized assets, Backed hopes to bring the advantages of DeFi infrastructure to traditional assets, including automation, easy transferring, and collateral spending.
xStocks: Bridging Traditional Finance and DeFi with Unprecedented Accessibility
The upcoming launch of xStocks represents a significant evolution in DeFi where tokenized assets are one-to-one backed by collateral assets such as stocks, equities, and ETFs. This means that for every digital token created, there's an equivalent share or fund held securely, providing real-world value and a strong foundation for the digital asset. Ownership of the assets are defined in their distributed ledger.
As xStocks assets are regulated in the EU, it allows them to be marketed and sold to retail users across Europe through licensed venues, leading to more financial accessibility. And with their recent partnership with Kraken, xStocks is looking to partner with more exchanges to list their assets.
This increase in listings will be particularly impactful for emerging economies or markets with limited access. As David mentions, “while people in emerging markets are buying stablecoins as a way to store value, it's still often very difficult for them to access wealth building opportunities."
David also notes that as blockchain continues to evolve, exchanges have the potential to become full-solution applications, providing not just crypto investing and remittances, but also tokenized stock investing. These all-in-one solutions, built on blockchain technology, have the potential to be cost effective and efficient.
Another advantage of xStocks lies in the ability to create a faster and more fluid global financial network. Unlike transferring traditional shares, which can be cumbersome and time-consuming due to the paperwork, tokenized stocks are freely transferable on the blockchain. This limits the friction on investors, allowing them to transfer assets between multiple brokers with ease.
“With xStocks, a user can purchase a token on one exchange and easily transfer them to another, hold them in a personal wallet, or even use them as collateral in a lending market. That is just not possible in the current financial infrastructure. It was not built for that," explains David.
This flexibility unlocks new possibilities for how individuals manage and leverage their assets, all without the need for complex, often manual, intermediaries. The solution, Backed believes, is to use public chains rather than trying to reinvent the wheel. This seamless integration into existing DeFi ecosystems is a cornerstone of their strategy, making tokenized equities as accessible and usable as stablecoins within the decentralized landscape.
Learning from the liquidity, fragmentation, and ownership challenges faced by stablecoins, Backed has built a robust and secure model for tokenized equities. David anticipates that “over the next three to five years, tokenized stocks potentially start to rival the market cap of stablecoins.” This growth will be driven by centralized crypto exchanges evolving into comprehensive financial platforms, outpacing traditional brokerages due to their understanding of DeFi and ability to offer more efficient and cost-effective services.
The Future: Growth, Scalability, and Real-World Impact
Backed’s long-term vision for tokenized financial products is ambitious. As an issuer, their goal is to integrate xStocks into as many existing public chains, DeFi protocols, and trusted exchanges as possible, increasing accessibility.
With xStocks soon to launch, their infrastructure, which they built with Alpaca’s Broker API, is ready to meet the needs of global demands. As David explains, “thankfully we had a lot of support from the Alpaca team that has allowed us to integrate seamlessly. And with Alpaca’s shared dedication to extensive testing, we’ve made sure everything works efficiently.”
Looking ahead, Backed has some lofty goals around how they’re tracking impact, growth, and scale.
- Increase the number of tokenized stocks beyond 57, based on customer demand.
- Achieve an AUM of $1 billion, earned and scaled through their distribution strategy.
- Increase the number of unique users and wallets, especially in emerging markets.
- Grow total value locked (TVL) in lending markets, showing an upgrade on TradFi operations.
- Foster real-world use cases where individuals can leverage their tokenized assets. An example of this could be obtaining a loan, rather than relying solely on traditional financial institutions.
“We've taken a pretty broad approach with the first 50+ stocks and ETFs and we'll see what people desire next. If someone comes to us and we decide we want to tokenize a thousand more stocks, the integration with Alpaca helps because you offer all of them. With our scalable infrastructure and access to Alpaca’s brokerage rails there should be no challenge in tokenizing more assets. With our partnership, we could do that in a month, maybe even a few weeks,” says David.
“Tokenization and tokenized stocks are the latest evolution to further improve the global accessibility to financial products. As we see this phenomenon quickly expand, we are excited to contribute to Backed’s xStocks and beyond through our partnership,” says Yoshi Yokokawa, Co-Founder and CEO at Alpaca.
The collaboration with Alpaca has been instrumental in realizing Backed and xStocks vision. The streamlined integration process, supported by Alpaca, is enabling them to expand their API, automate workflows, and deliver tokenized assets to the world.
About Alpaca
Alpaca is a US-headquartered self-clearing broker-dealer and brokerage infrastructure for stocks, ETFs, options, crypto, fixed income, and 24/5 trading – raising over USD170 million in funding. Alpaca is backed by top-tier investors globally, including Portage Ventures, Spark Capital, Tribe Capital, Social Leverage, Horizons Ventures, Unbound, SBI Group, Derayah Financial, Elefund, and Y Combinator.
Alpaca Securities LLC and Backed Finance (“Backed”) are not affiliated and neither are responsible for the liabilities of the other.
Alpaca Securities LLC and xStocks are not affiliated and neither are responsible for the liabilities of the other.
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