Tokenised stocks
Quick definition
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Tokenised stocks are digital assets tied to the value of a share in a company.
Key details
- Tokenised stocks are a way of buying stocks that represent the value of a company using cryptocurrency, with the transaction taking place on a cryptocurrency exchange.
- When you buy a tokenised stock, you get a digital asset on the blockchain that represents a share. Instead of the share itself, you receive a token into your cryptocurrency wallet that’s tied to the share’s value.
- Tokenised stocks may have trouble following the underlying stock due to a time gap between the traditional market and the price on the crypto exchange.
What is a tokenised stock?
Tokenised stocks are a way of owning shares in traditional companies using digital currencies. For example, crypto investors can invest in Tesla by purchasing a ‘tokenised’ version of the stock on a cryptocurrency exchange. The tokenised stock exists on a blockchain and tracks the performance of the company’s share price.
Investors who purchase the tokenised stock won’t own the underlying asset but will instead possess a derivative that tracks the price of TSLA in real-time. This offers an alternative way to invest in companies through decentralised finance (DeFi) as opposed to the traditional financial system, and offers some features that aren’t available with regular stocks.
Despite the accessibility of the technology, however, the digital derivative is susceptible to latency issues where the tokenised version of the stock unpegs from the actual price of the stock. This means that there is a delay (and thus a difference) between the price of the live stock and its tokenised equivalent.
Benefits of tokenised stocks
There is a lot more freedom over how, when, and where you can buy tokenised stocks. Rather than buying shares from a stock exchange, as would normally be the case, with tokenised versions you deal directly with another person. This provides more options, such as:
- 24/7 trading, you don’t need to stick to regular market opening hours
- Lower transaction fees as there are fewer intermediaries taking a cut
- Greater transparency with all transactions visible on the blockchain
- No regional restrictions on which stocks you can trade
- You can buy fractions of shares, trade as much or as little as you want
Risks of tokenised stocks
There is very little regulation of these assets. The downside of the freedom that this gives you is the fact that there is far less protection if something were to go wrong. Some of the downsides include:
- No regulatory protection if the company goes bankrupt or against malicious activity
- Traditional shareholder benefits, such as voting rights, are not available, and you may not be paid dividends
- A lack of liquidity can make it hard to find a buyer for your tokens
How do I buy tokenised stocks?
You need to use a cryptocurrency exchange. You will also need to pay for the stock using a cryptocurrency like Bitcoin or Tether. As this form of investing is relatively new, only a few exchange platforms offer it at the moment. Look through our reviews to find a platform that does allow you to buy stocks in this way.
Where can I learn more?
To learn more about how the blockchain works, you can head over to our cryptocurrency courses. If you’d like to learn more about cryptocurrencies and how to purchase them, then head over to the cryptocurrency investing page.
More definitions
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