Kraken Enhances Leveraged Crypto Trading by Introducing Tokenized Stocks

Kraken has introduced a new feature for eligible users, allowing select tokenized stocks and ETFs to be utilized as collateral for futures and margin trading on Kraken Pro. This enhancement enables traders to maintain leveraged positions in crypto without having to sell their tokenized assets beforehand.

The exchange has confirmed that 10 xStocks are available for collateral at launch. These assets include SPYx, QQQx, AAPLx, GOOGLx, TSLAx, NVDAx, HOODx, MSTRx, GLDx, and CRCLx.

This feature is available exclusively to eligible users located outside the United States. Futures collateral is open to qualified clients residing outside the U.S., including those in the European Economic Area, while margin collateral is restricted to eligible clients outside the U.S., excluding the EEA.

Tokenized Stocks Enhance Trading Functionality

Tokenized stocks and ETFs are blockchain-based instruments that replicate traditional securities. Kraken’s xStocks offering allows users to access U.S. companies such as Apple, Tesla, and Nvidia, as well as broad-market ETFs through digital tokens.

Previous discussions about xStocks have showcased Kraken’s commitment to establishing tokenized equities as alternative trading avenues. This product aims to provide access to over 60 tokenized U.S. stocks and ETFs, with a 1:1 backing and 24/5 trading availability.

This recent update alters the way traders can leverage these assets. For example, a user holding NVDAx can maintain their position while simultaneously using the same asset to support a leveraged position, in accordance with Kraken’s guidelines.

Kraken notes that eligible xStocks are automatically recognized as collateral wherever features for futures and margin trading are enabled on the user’s account, eliminating the requirement to transfer assets to another product beforehand.

Haircuts and Limits Help Mitigate Risk

Kraken applies haircuts and collateral limits to each eligible asset. Broad-market ETFs like SPYx and QQQx are subjected to a 10% haircut, with a collateral cap of $1 million.

Conversely, most individual stocks, including AAPLx, GOOGLx, TSLAx, and NVDAx, have a 20% haircut and a collateral limit of $250,000. Higher-volatility stocks like HOODx and MSTRx face a 30% haircut, while GLDx and CRCLx have lower collateral thresholds.

The exchange has indicated that these limits and haircuts may evolve over time, allowing Kraken to adjust collateral treatment in response to market fluctuations, liquidity, or risk profiles.

Kraken cautions users that leverage involves risks. The company stated, “This is not a risk-free means of accessing leverage.” If collateral values decrease, users may encounter margin calls or liquidation.

Tokenization Initiative is Continuously Growing

This initiative is part of a broader effort to incorporate traditional assets into the crypto trading ecosystem. A recent hackathon report indicated that tokenized stock markets have generated around $1.2 billion in market capitalization, while xStocks registered over $25 billion in total transaction volume.

Furthermore, Kraken is progressing collateral and credit products beyond just tokenized stocks. In May, Payward and Franklin Templeton announced a partnership to launch tokenized money market products on Kraken’s platform for collateral and cash management purposes.

Additionally, in June, Kraken and Maple initiated an institutional lending model employing a bankruptcy-remote structure for crypto-backed loans, concentrating on structured credit. Meanwhile, the recent xStocks update underscores trader collateral.

This culminates in a broader trading environment where tokenized assets can perform roles beyond simple price tracking. Currently, Kraken’s new feature offers eligible users an additional method for managing collateral, along with heightened leverage risks that traders must carefully observe.