Track market-moving stories before they get noisy

What Are Synthetic Assets?

Do Kwon Might Receive a 12 Year Prison Sentence After Guilty Plea

The US Securities and Exchange Commission released a comprehensive classification framework for tokenized securities on the same day Robinhood’s CEO publicly called for stock market tokenization.

Meanwhile, Terra’s Mirror Protocol—the first large-scale experiment in synthetic tokenized securities—ended with over $40 billion in investor losses and its founder’s guilty plea, underscoring the urgent need for regulatory clarity.

SEC Presents Tokenized Securities FrameworkOn January 28, the SEC’s Divisions of Corporation Finance, Investment Management, and Trading and Markets jointly issued a “Statement on Tokenized Securities.” The statement systematically classifies various structures of blockchain-recorded securities and specifies how existing federal securities laws apply to each type.

The SEC divided tokenized securities into two broad categories. The first is “issuer-sponsored tokenized securities,” where companies directly issue their own securities in token form. In this case, the blockchain functions as part of the master securityholder file. Token transfers constitute transfers of securities ownership.

The second is “third-party-sponsored tokenized securities,” where parties unaffiliated with the issuer tokenize existing securities. The SEC further subdivided this into custodial and synthetic models. Custodial models hold the underlying securities in custody, with tokens representing indirect ownership interests. Synthetic models provide only price exposure without conferring actual ownership rights.

Mirror Protocol: The Dark PrecedentThe first large-scale experiment in what the SEC now defines as “synthetic tokenized securities” was Mirror Protocol. Do Kwon launched it in December 2020. The platform, built on the Terra blockchain, purportedly enabled trading in synthetic versions of US-listed stocks like Apple and Tesla.

Do Kwon promoted the project as “granting intuitive access to global financial markets for disenfranchised users.” He claimed Mirror operated in a decentralized manner. Neither he nor Terraform played any role in its governance, he said.

The reality was starkly different. According to the US Attorney’s Office’s December 2025 sentencing statement, Do Kwon and Terraform “secretly maintained control over Mirror, and used automated trading bots to manipulate the prices of synthetic assets.” He also “caused Terraform to inflate key user metrics to deceive investors about the extent of Mirror’s adoption and decentralization.”

Mirror was part of a broader fraud scheme at Terraform. When UST and LUNA collapsed in May 2022, investors lost over $40 billion. Do Kwon was arrested in Montenegro in March 2023 while traveling on a fraudulent passport and was sentenced to 15 years in prison on December 11, 2025.

Robinhood Stock Tokens: A Different ApproachRobinhood already offers over 2,000 US stock tokens in Europe. The company describes them as “tokenized contracts that follow [stock] price” and “derivative contracts that do not grant rights to underlying securities”—fitting squarely into the SEC’s synthetic tokenized securities category, just like Mirror.

But the differences are substantial. Robinhood operates as a regulated financial institution, complying with MiFID II and transparently disclosing the derivative nature of its products. The company states that underlying assets are held by a US-licensed institution. Investors can start with as little as €1 and receive dividends when eligible.

Mirror, by contrast, disguised itself as a “decentralized community project” to evade regulation, while Do Kwon secretly controlled it. Its collateral was the algorithmic stablecoin UST, which ultimately collapsed.

Tenev’s Vision: From GameStop to TokenizationRobinhood CEO Vlad Tenev issued his statement on January 28—exactly five years after the GameStop buying halt that thrust his company into crisis. He identified the T+2 settlement system as the root cause, arguing that tokenization-enabled real-time settlement is the solution.

“T+1 is still far too long, particularly when you factor in that it really means T+3 on Fridays, or T+4 on long weekends,” Tenev wrote. Blockchain-based tokenization would eliminate settlement risk and enable customers to trade freely at any time.

Tenev announced plans to enable 24/7 trading and DeFi access within the coming months. Investors could self-custody their stock tokens and use them for lending and staking. If realized, this would shift Robinhood’s structure from synthetic to custodial. It could address the current risk: total capital loss if the company goes insolvent.

The Push for Regulatory ClarityTenev praised the current SEC leadership for supporting tokenization experiments and urged the passage of the CLARITY Act, which is under consideration in Congress. “Legislation would ensure that subsequent commissions cannot abandon or reverse the progress achieved by this SEC,” he wrote.

The SEC statement represents staff views without legal binding force, but the precedent of Mirror Protocol demonstrates what regulatory gaps can produce. Do Kwon built his fraudulent empire by claiming “decentralization” exempted him from securities laws—a claim the SEC’s new framework explicitly rejects.