Many people who enter the crypto space are surprised by how intertwined the industry is with real markets and the world. One of these surprises is tokenized shares. But how can this be?
It's all quite simple.
What Are Tokenized Shares?
According to information found on Coinmarketrate.com, we can look at stocks that have been tokenized in the same way as any company's stock that is traded on more traditional exchanges, such as the S&P 500 or Nasdaq. The difference is that the former is a digital token.
When we buy shares in the traditional way on the stock exchange or in an Initial Public Offering (IPO), those shares go into the account of our investment broker.
Advantages of Tokenized Stocks
The advantage of tokenized stocks is that, since they are a crypto asset and run on the blockchain, they can be bought and traded on a crypto exchange just like any other type of crypto asset.
Typically, an investment and custodial organization is involved in creating a share tokenization.
How Are Tokenized Stocks Created?
A company buys a share of stock that it wants to tokenize. The stock is deposited with another company that serves as the custodian. A token is generated that represents that share on the blockchain, with a price equal to the stock it is tied to. The token is listed on a cryptocurrency exchange where it can be bought and exchanged for another cryptocurrency.
However, it is essential to understand that in this process, investors do not own the stock itself but its derivative.
Trading Tokenized Stocks vs. Traditional Stocks
Why Do Companies Tokenize Their Shares?
The primary reason for stock tokenization is the same as the reason for issuing stocks in the first place: to raise capital.
Advantages for Companies
Stock tokenization serves as an alternative to IPOs or issuing new shares. It allows companies to sell their shares to individuals who cannot access traditional markets. Stocks can trade in more dynamic markets compared to traditional asset sectors.
Challenges and Risks
Regulatory uncertainty remains a concern since cryptocurrencies and tokens are not regulated in all countries, creating a gray area that can be exploited. Another challenge is that it is not necessarily the company that tokenizes the shares—anyone can buy shares and tokenize them.
Examples of Tokenized Shares
Many well-known companies have tokenized shares.
Tech and Auto Industry
Mirrored Apple (MAAPL) is a tokenized version of Apple stock. Mirrored Tesla (MTSLA) represents Tesla, a popular company owned by Elon Musk. Mirrored Google (MGOOGL) is a tokenized version of Alphabet (Google) stock.
Social Media & E-Commerce
Mirrored Twitter (MTWTR) is a tokenized version of Twitter stock. Mirrored Alibaba (MBABA) represents Alibaba, the Asian e-commerce giant.
Commodities & ETFs
Mirrored iShares Gold Trust (MEOW) is an ETF that replicates the value of gold. Mirrored iShares Silver Trust (MSLV) is a silver ETF in tokenized form. Mirrored United States Oil Fund (MUSD) is a tokenized ETF tracking oil prices.
If you've looked at the prices of some of these tokens, you'll notice that not all of them are worth the same as stocks. That’s because they don’t necessarily have to be backed 1:1. This is especially true for DeFi platforms, where they only track stock prices rather than being fully backed.
Advantages and Disadvantages of Share Tokenization
Advantages
High liquidity is a potential benefit, as more people can access these shares than traditional ones. Transactions can be completed in minutes or seconds, compared to days in traditional markets. Tokenization allows for fractional ownership, making it easier to invest in shares. Some exchanges charge minimal or even zero fees. Unlike traditional stock markets, crypto markets never close, allowing trading 24/7.
Disadvantages
Token holders do not have voting rights or ownership in the company. There are third-party risks involved, as additional intermediaries are part of the process. Some platforms may impose Know Your Customer (KYC) regulations, adding extra requirements for investors.
Read more : Asset tokenization
Conclusion
In theory, anyone can trade tokenized stocks, which is part of the beauty of cryptocurrencies—no one is left out.
The biggest advantage is market accessibility. Investors who cannot access traditional financial markets can still gain exposure to stocks through tokenization. For example, someone without a bank account might be unable to register with a broker and buy shares. In some countries, even with a bank account, it’s still impossible. Tokenized stocks offer a potential solution.
However, investors must be aware of the risks, including regulatory uncertainty and the lack of shareholder rights. While stock tokenization opens up new opportunities, it remains a derivative instrument rather than direct stock ownership.
0 Comments