Tokenised stocks

3 key takeaways

• Tokenized stocks allow investors to buy and trade fractional shares of traditional stocks using blockchain technology.
• They provide increased accessibility, liquidity, and flexibility in stock trading.
• Tokenized stocks maintain the value and rights of the underlying shares, including dividends and voting rights.

What are tokenized stocks?

Tokenized stocks are digital representations of traditional stock shares issued and traded on blockchain platforms. Each tokenized stock represents a fraction or the entirety of a real-world stock, allowing investors to buy and trade these tokens similarly to how they would with cryptocurrencies. This process involves creating a digital token that is backed by the corresponding share of the underlying stock.

Tokenized stocks leverage the advantages of blockchain technology, including transparency, security, and the ability to trade 24/7. They democratize access to stock markets by enabling fractional ownership, allowing investors to purchase smaller portions of expensive stocks that they might not be able to afford otherwise.

How tokenized stocks work

The process of creating and trading tokenized stocks involves several steps:

• Issuance: A financial service provider or platform acquires traditional stock shares and issues corresponding digital tokens on a blockchain. Each token represents a fraction of the underlying stock.
• Trading: Investors can buy, sell, and trade tokenized stocks on supported blockchain exchanges. Transactions are recorded on the blockchain, ensuring transparency and security.
• Ownership and Rights: Holders of tokenized stocks retain the economic benefits of the underlying shares, including dividends and voting rights. The platform managing the tokenized stocks ensures these rights are exercised on behalf of the token holders.

Benefits of tokenized stocks

Tokenized stocks offer several advantages for investors and the broader financial market:

• Fractional Ownership: Investors can buy fractions of expensive stocks, making high-value investments more accessible.
• Increased Liquidity: Blockchain platforms enable 24/7 trading, improving liquidity and allowing investors to trade outside traditional market hours.
• Global Access: Tokenized stocks can be traded globally without the restrictions and barriers of traditional stock exchanges.
• Lower Costs: Reduced transaction fees and the elimination of intermediaries can lower the costs associated with buying and selling stocks.
• Transparency and Security: Blockchain technology ensures transparent, secure, and tamper-proof records of ownership and transactions.

Challenges and considerations

Despite their benefits, tokenized stocks also present challenges and considerations:

• Regulatory Uncertainty: The regulatory environment for tokenized stocks is still evolving, and compliance with securities laws varies by jurisdiction.
• Custody and Control: Ensuring the underlying shares are properly managed and that investors’ rights are protected requires robust custodial solutions.
• Market Acceptance: Adoption of tokenized stocks depends on the willingness of traditional financial institutions and investors to embrace blockchain technology.
• Technology Risks: As with any blockchain-based asset, tokenized stocks are subject to technological risks, including cybersecurity threats and platform reliability.

Examples of tokenized stocks platforms

Several platforms and financial service providers have developed tokenized stock offerings:

• FTX: The now-defunct cryptocurrency exchange FTX offered tokenized stocks of major companies, allowing users to trade fractional shares.
• Bittrex Global: This platform provides tokenized stocks of well-known companies, enabling trading with the benefits of blockchain technology.
• Synthetix: A decentralized finance (DeFi) platform that offers synthetic assets, including tokenized stocks, which track the value of real-world assets.

Tokenized stocks represent an innovative convergence of traditional finance and blockchain technology, offering new opportunities for investors to participate in the stock market. While challenges remain, the potential benefits of increased accessibility, liquidity, and efficiency make tokenized stocks an exciting development in the financial industry. As the regulatory landscape evolves and technology advances, tokenized stocks may become a more integral part of the global financial ecosystem.