Kraken's co-chief executive has drawn a sharp line between his exchange's tokenized stock business and competitors who offer digital shares in private companies, calling Robinhood's approach fundamentally flawed and risky for investors.

Arjun Sethi rejected the growingly popular idea of tokenizing private company equity outright, warning that investors face serious problems when trying to exit such positions.

"The argument Vlad is using is flawed," Sethi said during Financial Times’ interview, referring to Robinhood CEO Vlad Tenev. He called tokenizing private company stocks a "terrible idea.”

OpenAI Offering Sparks Backlash

Robinhood faced criticism earlier this year when it launched tokenized representations of OpenAI shares in Europe, despite the AI company not authorizing the offering. OpenAI publicly distanced itself from the product, stating the tokens did not represent actual company equity and warning that any transfer of OpenAI ownership requires company approval.

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The controversy highlighted the liquidity and resale restrictions inherent in private company shares, issues that Sethi said make tokenization particularly problematic. Unlike publicly traded stocks that benefit from continuous markets and regulatory oversight, private securities often come with transfer restrictions and limited buyer pools.

However, Tenev holds a completely different view and said in a recent interview with Bloomberg Wealth, “A big tragedy is that private markets are where the bulk of the interesting appreciation and exposure is nowadays. It’s a shame that it’s so difficult to get exposure in the U.S.”

Kraken has taken a more cautious path, restricting its tokenized equity offerings to established, publicly traded companies to avoid regulatory pushback. The platform currently offers 60 assets including Tesla, Apple and GameStop shares, with plans to expand to 1,000 popular stocks.

Public Equity Tokens Gain Momentum

Sethi’s comments came as Kraken reported passing $5 billion in trading volume for its xStocks platform, which offers tokenized versions of publicly listed US equities.​

Each tokenized stock is backed one-to-one by the underlying equity, held with a regulated custodian in Europe through the exchange's partnership with Swiss firm Backed Finance.

The platform enables 24/7 trading of US equities across multiple blockchains including Solana, BNB Chain, TRON and Ethereum, breaking from traditional market hours. Users can move holdings between compatible platforms or store them in self-custody wallets, features unavailable through conventional brokerage accounts.

"With xStocks, we're not launching a novelty. We're unlocking something foundational," Sethi said. "For the first time, people all over the world can own and use a share of a tokenized stock like they would use money".

The service has gained traction in markets like South Africa and Argentina, where DeFi technology allows Kraken to offer shares without the additional fees imposed by intermediaries; fees that can inflate stock purchase prices by 10% to 15% over actual value.

UK Restrictions Block Platform Access

But British customers cannot access Kraken's tokenized stock platform or roughly 75% of the crypto products available to US users, according to Sethi, who shares the chief executive role with David Ripley. The restrictions stem from the Financial Conduct Authority's financial promotion regime, introduced in late 2023.

Speaking to the Financial Times, Sethi compared the experience of visiting a UK crypto website to encountering cigarette package warnings. "In the UK today, if you go to any crypto website, including Kraken's, you see the equivalent to a cigarette box - 'use this and you're going to die,'" he said.

The FCA requirements force crypto platforms to display prominent risk warnings, ban incentives for investing, and make customers complete multiple verification steps before allowing trades. Sethi argued that the multi-step process hurts consumers in a market where timing matters.

"Because of the speed at which they have to do the transaction, it's worse for consumers," he told the newspaper, adding that having 14 steps makes disclosures counterproductive.

The remarks come just days after Sethi, representing Kraken, met with British policymakers to discuss the development of digital asset innovation in the UK.

Regulator Stands Firm

The FCA defended its approach, saying the rules ensure customers understand both benefits and risks before investing. A spokesperson noted that while customers must answer questions before receiving a financial promotion, they don't face the same requirements for every trade.

"Some consumers may make an informed decision that investing in crypto is not right for them - that is our rules working as intended," the regulator said.

Britain's watchdog has stepped up enforcement of the promotion rules this year. In October, the FCA filed a lawsuit against HTX, a crypto exchange connected to billionaire Justin Sun, accusing the platform of failing to comply with the financial promotion requirements. Sun has invested millions in digital asset ventures tied to the Trump administration.

The global securities regulator, IOSCO, has criticized asset tokenization, citing uncertainty regarding ownership and counterparty risks posed by token issuers.

Kraken, founded in 2011 and ranking among the world's 15 largest exchanges by trading volume, has prepared for a New York listing though Sethi declined to discuss timing. The exchange is reportedly seeking $500 million in funding at a $15 billion valuation ahead of a potential 2026 initial public offering.