Kraken gave token holders a vote, and quietly solved tokenized equity’s biggest legal gap

A Jersey-law custody structure lets xStocks holders instruct real shareholder votes through an on-chain mechanism, closing a governance gap the tokenized equity industry has discussed for years but never shipped.

When Kraken listed xStocks on June 30, 2025, the launch documentation was unusually candid about what the tokens did not do. Traders could not vote in shareholder meetings. Dividends were absent. The tokens were described as instruments for capturing price exposure, best suited to high-growth names like Nvidia and Tesla that paid no dividends anyway. Kraken had brought tokenized equity to retail holders across more than 110 countries. It had not brought the full substance of equity ownership.

That distinction mattered less when xStocks was a new product with $2 billion in cumulative volume and 24,000 holders. It matters considerably more now that the platform has processed more than $30 billion in total transaction volume, settled over $6 billion on-chain, and attracted 125,000 unique holders across more than 110 countries. At that scale, the absence of governance rights is not a footnote in the terms of service. It is a ceiling on what kind of investor the product can reach and what kind of asset the token can legitimately claim to be.

The governance pass-through that Kraken has built into the xStocks framework is a direct response to that ceiling.

What changed and when

The change arrived not as a major product announcement but as an update to the contractual terms governing Backed Assets (JE) Limited’s custody arrangement. Backed Assets is the Jersey-incorporated private limited company that issues xStocks tokens and holds the underlying shares in custody. When those terms were updated to include a binding obligation to follow token holder voting instructions, the governance right was created in the most durable way available to an offshore product: contractual obligation under Jersey law.

The mechanism works as follows. For each company held within the xStocks universe, Backed Assets receives proxy materials ahead of the relevant annual general meeting or extraordinary general meeting. Token holders who hold eligible xStocks on the record date can submit voting instructions through their Kraken account. Those instructions are aggregated and recorded on the Ink blockchain, Kraken’s own Ethereum Layer 2 network. The aggregated result is transmitted to Backed Assets as a contractual instruction. Backed Assets then votes the underlying shares it holds at the relevant meeting according to those instructions.

The on-chain recording of each individual instruction creates a public, immutable audit trail. The timestamp, wallet address, and direction of each vote are verifiable by any party with access to the Ink chain. This transparency is notably stronger than the internal vote aggregation systems used by most traditional brokerages, where the process of collecting and tallying beneficial owner instructions is handled in proprietary databases that regulators have historically found opaque.

The custody chain that makes it work

To understand why this mechanism is legally possible, it is necessary to trace the chain of ownership. Backed Assets purchases the underlying U.S.-listed shares through a regulated brokerage arrangement. Those shares are held at a central securities depository, with Backed Assets or its broker as the beneficial owner. Backed Assets then issues xStocks tokens, each representing a one-to-one claim against the corresponding share held in custody. Those tokens reach end users through Kraken and other members of the xStocks Alliance network.

For voting purposes, the chain runs in the opposite direction. A company like Apple or Nvidia sends its annual meeting notice to the registered holder of record. Under the U.S. street-name system, that registered holder is typically a nominee linked to the Depository Trust and Clearing Corporation, which is obligated to pass voting rights upward to the beneficial owner, which in this case is Backed Assets or its broker. Backed Assets, now contractually bound by its updated custody terms, collects instructions from token holders before casting those votes on their behalf.

The mechanism is coherent within its own architecture because Backed Assets is the actual beneficial owner of the underlying shares. The voting rights that flow to it through the DTCC nominee system are genuine shareholder rights, not synthetic representations of them. What Backed Assets has added is a contractual sub-delegation: the decision about how to exercise those rights now flows downward to the token holders who bear the economic exposure.

Why the legal gap existed in the first place

Tokenized equity in its current form inherits a structural problem that predates blockchain by decades. U.S. corporate law vests voting rights in the shareholder of record. When brokers began holding shares in street name in the 1970s to make settlement more efficient, the SEC introduced Regulation 14A, which requires companies to distribute proxy materials to beneficial owners and requires brokers to pass voting instructions from beneficial owners up the chain.

Offshore tokenized equity disrupts this chain at a new point. The custodian holding the underlying shares is incorporated in Jersey and operates under a Bermuda digital asset license. The tokens it issues are not registered under the U.S. Securities Act of 1933. The token holders are primarily non-U.S. persons in jurisdictions where no domestic equivalent of Regulation 14A compels a pass-through.

In this environment, the path taken by every prior tokenized equity product was to exclude governance rights entirely. The original xStocks launch followed that path. Binance’s BSTOCKS, which launched and was discontinued in 2021, gave holders no voting rights. Robinhood’s EU tokenized stocks, issued under a MiFID II-compliant prospectus, track price returns but exclude all governance attributes. Mirror Protocol’s synthetic equity tokens on Terra never purported to convey any rights against underlying issuers.

That exclusion was a deliberate legal choice, driven by the complexity of building a compliant cross-border governance pass-through, the liability exposure if the mechanism failed, and the absence of any regulatory framework specifically authorizing a blockchain-based voting instruction as a valid proxy submission.

Jersey law and why it matters

The reason xStocks can offer what prior products did not is the specific legal properties of the Backed Assets custody structure under Jersey law. Jersey is a Crown dependency with a body of company and trust law designed to support complex cross-border custodial arrangements.

Under the Companies (Jersey) Law 1991 and the Trusts (Jersey) Law 1984, it is possible to create enforceable beneficiary instruction rights within a custodial arrangement without those rights constituting a separate class of securities under Jersey financial services law. The xStocks token is not, under Jersey law, a security in the sense that would trigger the Jersey Financial Services Commission’s registration requirements. It is a contractual instrument that carries specified economic and governance rights against Backed Assets (JE) Limited.

This legal classification is the key to why the mechanism works. If voting rights were framed as a securities attribute requiring SEC recognition, the structure would need to engage with Regulation 14A and U.S. broker-dealer registration, which Backed Assets and Payward Digital Solutions Ltd. cannot satisfy because xStocks are explicitly not offered to U.S. persons. By classifying the voting right as a contractual beneficiary instruction right under Jersey law, Kraken has built a mechanism that is legally coherent within its own jurisdiction and requires no external regulator to authorize it.

The on-chain aggregation layer adds a transparency element that actually exceeds what most regulated proxy plumbing provides. Every instruction is timestamped, publicly verifiable, and permanent. Traditional brokerages aggregate votes in proprietary internal systems; the xStocks mechanism makes the aggregation auditable by anyone.

What the rest of the industry has done instead

The contrast with competitor approaches shows how narrow the viable design space for this feature is. The main alternatives to the xStocks contractual custody pass-through are economic-only tokens, synthetic equity derivatives, and fully registered security tokens.

Economic-only tokens, which describes Robinhood’s current EU offering, deliver price exposure and in some structures dividend equivalents, but explicitly exclude governance. This is the lowest-complexity option from a legal standpoint, but it is also the design that most directly prevents the product from appealing to institutional allocators with stewardship obligations written into their mandates.

Synthetic equity derivatives, used by venues offering perpetual futures on equity names, have no connection to an underlying share held anywhere. A synthetic position tracking Apple’s price has no relationship to Apple Inc. as a legal entity and cannot convey governance rights because there is nothing to vote. Kraken itself offers xStocks perpetual futures through its xChange execution layer alongside the spot token, but the voting pass-through applies only to the spot token, not to the derivative.

Fully registered security tokens, the model pursued by platforms including Securitize, do attempt to convey the complete bundle of shareholder rights through a digital token. But registration under a major securities regime constrains distribution to accredited or qualified investors and involves ongoing compliance costs that make retail-scale distribution difficult. No fully registered security token product has reached anywhere near xStocks’ holder count or volume trajectory.

Regulatory implications for a U.S. expansion

The mechanism works precisely because xStocks are not offered to U.S. persons. The SEC’s jurisdiction over proxy solicitation under Regulation 14A extends to any solicitation that reaches U.S. shareholders. If the xStocks voting instruction process were offered to U.S. persons, it could be characterized as a proxy solicitation subject to that regulation, requiring specific disclosures, a structured proxy statement, and filing with the SEC.

The SEC’s enforcement posture in the digital asset sector raises a further structural concern. The agency has progressively argued that blockchain-based mechanisms that convey economic returns or governance rights can constitute investment contracts under the Howey test. A token that carries a real vote at a real company’s annual meeting begins to resemble equity in that company. If that token were offered to U.S. persons, the agency could pursue classification as a security requiring registration under Section 12 of the Securities Exchange Act of 1934.

Payward Digital Solutions Ltd., the Bermuda-licensed entity through which xStocks are offered, holds a Digital Asset Business license from the Bermuda Monetary Authority. The BMA’s framework accommodates structured instruments without treating every contractual right as a separately regulated security, which is the environment in which the pass-through can function without regulatory intervention.

U.S. state law adds further complexity for any future expansion. Blue sky statutes in states including California and New York define “security” broadly enough to potentially capture a contractual instrument carrying voting rights even if the federal analysis were resolved favorably. Any U.S. launch would require state-by-state review alongside the federal analysis.

What this means for institutional capital

Governance rights have been cited explicitly by institutional asset managers as a structural barrier to including tokenized equities in professionally managed portfolios. Large managers with fiduciary duties under ERISA or equivalent regimes are generally required to exercise voting rights on behalf of beneficiaries. A product that strips out voting is, for those managers, a compliant substitute for direct share ownership only if the investment mandate specifically permits it.

Passive index-tracking funds face this most acutely. Because they cannot exit positions that fall out of mandate, proxy voting is the primary lever through which passive managers influence corporate behavior. A tokenized equity product that gives those managers no governance capability is structurally incomplete.

The xStocks EU expansion, which opened the product to a major institutional market that had previously been excluded at launch, was one step toward a product that institutional allocators could consider. The governance pass-through is a second, arguably larger, step. Accounting treatment under IFRS and U.S. GAAP, custodial risk, and the absence of SEC regulatory recognition remain open questions for any institutional allocator subject to those frameworks. But governance capability removes what many allocators have described as the most immediately obvious structural gap between xStocks and a traditional equity holding.

The limits of the fix

The Jersey contractual pass-through is functional within its own framework, but it carries limits that any holder or allocator should weigh before treating it as equivalent to direct share ownership.

The voting right is a contractual right against Backed Assets, not a corporate law right against the underlying company. If Backed Assets entered insolvency or failed to fulfill its contractual obligation to follow voting instructions, a token holder’s remedy would be through Jersey courts under Jersey contract law, not through the shareholder remedies available in U.S. courts, which include appraisal rights, derivative suits, and direct actions against directors.

The mechanism also depends on the one-to-one share backing being maintained at all times. If outstanding token supply were ever to exceed the underlying share holding at any moment, not all voting instructions could be transmitted. The one-to-one requirement is designed to prevent this, and Backed Assets publishes proof-of-reserve data to support it, but real-time on-chain verification available to individual token holders is not yet in place.

The practical weight of individual votes also depends on concentration. For a company like Apple or Nvidia, even a substantial xStocks position represents a small fraction of total outstanding shares. The pass-through gives token holders a real vote. Whether that vote is consequential depends on how large the xStocks holder base grows relative to total outstanding share counts for each underlying company.

What to watch

Total xStocks on-chain settled volume crossing $10 billion: This level would signal institutional liquidity depth sufficient to attract allocators with minimum position size requirements, and would make the governance mechanism relevant to funds that currently cannot meet internal liquidity standards for tokenized equity.

SEC comment or formal no-action guidance on offshore tokenized equity voting: Any written SEC position on whether the xStocks mechanism constitutes a Regulation 14A proxy solicitation would clarify the pathway for a U.S. expansion and signal how the agency plans to treat voting-enabled tokenized equity more broadly.

A competing platform announcing a comparable voting pass-through: If Robinhood, eToro, or another major tokenized equity venue announces a governance pass-through mechanism, it would indicate that the contractual custody model is becoming the industry standard rather than a single-platform feature.

Backed Assets publishing real-time proof-of-reserve for voting record dates: On-chain verification that underlying share counts match outstanding token supply at each record date would remove the remaining trust dependency from the governance mechanism, allowing institutional allocators to rely on it without a separate audit engagement.

First AGM where xStocks instructions exceed 0.1 percent of total votes cast: This threshold would mark the first moment xStocks holders have had a measurable effect on a real governance outcome, transforming the pass-through from a legal feature into a market-relevant force.

Disclaimer: This article is published for informational purposes only and does not constitute investment, legal, or financial advice. xStocks tokens are not offered to U.S. persons or persons in restricted jurisdictions. Past performance of tokenized equity products does not predict future results. Published August 6, 2026.