AMM-bivalent: How Not to Deploy Tokenized Stocks in DeFi

The launch of Robinhood’s layer-2 blockchain has significantly impacted the RWA market, driving decentralized exchange volume to nearly $5 billion daily and positioning it as a leading chain for tokenized asset trading. While tokenized U.S. Treasury funds like BlackRock’s BUIDL and Circle’s USYC have achieved significant on-chain value, they currently suffer from low holder counts and minimal trading activity. Conversely, tokenized stocks have seen increased interest following the SEC’s recent proposal for an innovation exemption, which creates a legal pathway for fully tokenized equities to trade on automated market makers (AMMs). However, research indicates that indiscriminately pooling broad indices like the S&P 500 into AMMs is inefficient, as high asset dispersion leads to significant impermanent loss. Analysis shows that a 500-asset S&P 500 pool would have underperformed holding by 3% and required 45x annual turnover to break even. Consequently, the report suggests that AMMs are better suited for low-dispersion, structurally linked assets, while single stocks are more effectively utilized through lending protocols. This shift highlights the evolving maturity of on-chain finance as participants move beyond simple tokenization toward optimizing deployment strategies.