LSEG and Kraken Partner to Tokenize FTSE 100

The London Stock Exchange Group (LSEG) and Payward, the parent company of crypto exchange Kraken, have partnered to tokenize the FTSE 100, making it available as blockchain-based instruments called xStocks in over 110 countries. This deal marks a significant milestone for LSEG as the first major incumbent exchange to anchor its regulated settlement infrastructure directly to the xStocks framework.

While this partnership has been touted as a breakthrough, a closer look at the fine print reveals that an xStock is not a share in the classical sense. Legally, it's a tracker certificate, a bearer bond issued by Backed Assets (JE) Limited, with each certificate designed to track the price of the underlying security at a 1:1 ratio.

This structural difference between xStocks and exchange-traded funds (ETFs) has significant implications for holders. In the event of issuer insolvency, xStock holders become creditors of the bankrupt estate rather than owners of ring-fenced assets.

The partnership also involves Alpaca Securities, a FINRA-regulated US broker-dealer that will hold the underlying FTSE 100 shares in segregated sub-accounts under a three-party Account Control Agreement. This structure ensures that the underlying value can be claimed directly by holders if Kraken or Backed goes bankrupt.