Kraken's co-chiefexecutive has drawn a sharp line between his exchange'stokenized stock business and competitors who offerdigital shares in private companies, calling Robinhood'sapproach fundamentally flawed and risky for investors.Arjun Sethirejected the growingly popular idea of tokenizing private companyequity outright, warning that investors faceserious problems when trying to exit such positions. "The argumentVlad is using is flawed," Sethi said during Financial Times’interview, referring to Robinhood CEO Vlad Tenev. He calledtokenizing private company stocks a "terrible idea.”OpenAIOffering Sparks BacklashRobinhoodfaced criticism earlier this year when it launched tokenizedrepresentations of OpenAI shares in Europe, despite theAI company not authorizing the offering. OpenAIpublicly distanced itself from the product,stating the tokens did not represent actualcompany equity and warning that any transfer ofOpenAI ownership requires company approval.The controversyhighlighted the liquidity and resale restrictions inherent inprivate company shares, issues that Sethi said make tokenizationparticularly problematic. Unlike publicly tradedstocks that benefit from continuous markets andregulatory oversight, private securities often come withtransfer restrictions and limited buyer pools.However, Tenevholds a completely different view and said in a recent interview withBloomberg Wealth, “A big tragedy is that private markets are where the bulk ofthe interesting appreciation and exposure is nowadays. It’s a shame that it’sso difficult to get exposure in the U.S.”Kraken hastaken a more cautious path, restricting its tokenizedequity offerings to established, publicly traded companies to avoidregulatory pushback. The platform currently offers 60 assetsincluding Tesla, Apple and GameStop shares, with plans to expand to 1,000popular stocks.Public Equity TokensGain MomentumSethi’s comments came as Krakenreported passing $5 billion in trading volumefor its xStocks platform, which offers tokenizedversions of publicly listed US equities.Eachtokenized stock is backed one-to-one by the underlying equity, heldwith a regulated custodianin Europe through the exchange's partnership withSwiss firm Backed Finance.The platformenables 24/7 trading of US equitiesacross multiple blockchains including Solana, BNBChain, TRON and Ethereum, breaking from traditionalmarket hours. Users can move holdings betweencompatible platforms or store them in self-custodywallets, features unavailable through conventional brokerageaccounts."WithxStocks, we're not launching a novelty. We're unlocking somethingfoundational," Sethi said. "For the first time, people all overthe world can own and use a share of a tokenized stock like theywould use money".The servicehas gained traction in markets like South Africa and Argentina, whereDeFi technology allows Kraken to offer shares withoutthe additional fees imposed by intermediaries; fees that can inflate stockpurchase prices by 10% to 15% over actual value.UK Restrictions BlockPlatform AccessButBritish customers cannot access Kraken's tokenizedstock platform or roughly 75% ofthe crypto products available to US users, according toSethi, who shares the chief executive role with DavidRipley. The restrictions stem from the Financial ConductAuthority's financial promotion regime, introducedin late 2023.Speaking tothe Financial Times, Sethi compared the experience of visiting aUK crypto website to encountering cigarettepackage warnings. "In the UK today, if you go to any cryptowebsite, including Kraken's, yousee the equivalent to a cigarette box - 'use thisand you're going to die,'" he said.The FCArequirements force crypto platforms to displayprominent risk warnings,ban incentives for investing, andmake customers complete multiple verification steps beforeallowing trades. Sethi argued that the multi-step process hurtsconsumers in a market where timing matters."Because ofthe speed at which they have to do the transaction,it's worse for consumers," he told the newspaper, addingthat 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 FirmThe FCAdefended its approach, saying therules ensure customers understand both benefits andrisks before investing. A spokesperson noted that whilecustomers must answer questions before receiving a financial promotion,they don't face the same requirements for every trade."Someconsumers may make an informed decision that investing in cryptois not right for them - that is our rules working as intended,"the regulator said.Britain'swatchdog has steppedup enforcement of the promotion rules this year. In October,the FCAfiled a lawsuit against HTX, a crypto exchange connected tobillionaire Justin Sun, accusing the platform of failing tocomply with the financial promotion requirements. Sun hasinvested millions in digital asset ventures tied to the Trumpadministration.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 largestexchanges by trading volume, has prepared for a New Yorklisting though Sethi declined to discuss timing. Theexchange is reportedly seeking $500 million in funding at a $15billion valuation ahead of a potential 2026 initial publicoffering.This article was written by Damian Chmiel at www.financemagnates.com.