Tokenized stocks can be thought of as a synthetic version of real stock. You can buy these assets as well as trade them on various exchanges, making them an accessible form of investment. They represent equity or a share of a corporation or organization. These equities are in the form of digital coins much like crypto coins but they essentially hold different values.
As currencies based on blockchain are gaining immense popularity in recent times. Many companies and businesses are finding it convenient to use digital shares rather than conventional currencies. This system has been possible because the decentralized nature of blockchain assets has made them affordable to create, issue, and transfer digital tokens.
A security token can be simply referred to as a special type of cryptocurrency or its variable form that is on the rise. It allows one to have a portion of the company’s ownership. They act as a bridge between the traditional stock exchange and the blockchain assets. Simply, they are a type of token that gives you the right to have equity shares in the company, to share in profit, or acquire ownership in the company.
Security token offerings issue security tokens that are similar to ICO. It can be understood as a financial instrument that holds a certain type of monetary value. The tokens are backed by real-world assets. The backing agency may be a company or an independent business group. Security token offerings are regulated by government laws and are more cost-effective than IPOs and ICOs.
Tokenized stocks have various features that differentiate them from regular stocks. They are widely accessible as they can be bought or sold from anywhere in the world. This is essentially possible due to their digital nature. Whereas many regular stocks cannot be purchased easily all over the world. In short, through tokenized stocks, an individual is not limited to buying stocks within a particular country. On the other hand, with regular stocks, they can only buy stocks traded in their own country premises. Tokenized stocks provide a legal method to people, helping them to get access to the US stock and buy them comfortably.
An individual can buy a fraction of tokenized stocks as they are divisible. For example, now you can buy a tenth of the share of Amazon stock or any portion depending on how much you can afford. The tokenized stocks like the digital market remain open 24 hours for all 7 days. It is a low-cost method than regular stocks and often requires less documentation and authorization. As now investors can get exposure to a company through a tokenized stock, there is no need for brokers which cuts down a significant portion of an investor’s expense.
Tokenizing an asset or share increases its liquidity. It leads to the all-time availability of an asset as the crypto market operates 24/7. These assets act as a mediator between the digital market and the real assets. These stocks are pegged to underlying an asset and not a particular fiat currency that is what makes them more valuable. For tokenization, a company buys stocks of a share in another company to convert them to tokens.
The purchased stocks are backed and supported by a licensed bank. Investors purchase these tokens instead of real stocks to get ownership in the company or a business. As the tokens are divisible an investor can buy stocks of any desired amount. The ownership in the company depends upon the number of shares purchased.
Various companies have been finding it convenient to issue tokenized stocks. As tokenization of stock has allowed investors to get hold of the assets anytime they want. Investors are becoming increasingly inclined towards them. That is why many large groups have shown interest in legally issuing tokens of their assets.
Companies like Amazon, Alibaba, Apple, Facebook, Google, Netflix, Pfizer have already issued tokenized tools in the market. Many other mainstream firms and organizations are either planning or have launched their versions of tokenized stocks in the market.
You can trade tokens through various exchanges. These exchanges allow you to buy or sell a fraction of a share such as that of a Tesla. Many of these exchanges are quite affordable and do not even charge a commission. Token holders will also enjoy benefits such as dividends and other economic benefits of holding and trading the underlying stock or parent asset.
The exchanges however do not allow voting rights as of now. After passing through certain security and authorization levels as mentioned in the exchange you will be entitled to trade the tokens. The authorization checks may include proof of address, more advanced identity checks, complete risk assessment, and suitability questionnaire. Trading through the exchanges is also more preferable as they give you access to historical charts, an order entry panel, and an order transaction history panel. They give you an idea of estimated prices, and a prediction to increase the convenience and profitability margins of traders.
Although these prices are not guaranteed they give you a rough idea of how the market or stocks will behave in near future. Other than voting rights the token holders will be able to enjoy all the other benefits. The stocks can be converted into fiat such as the US dollars that will be added to the user’s current wallet. Although these stocks are available 24/7, prices and charts are only updated during traditional working hours. All automatic actions or actions in the underlying assets will be informed to the users through email.
Tokenized stocks are cost-friendly and profiting but there are concerns about the viability and dependability of such an emerging business model. As these are still in an experimental stage they carry their own risks. No doubt it is series of complicated procedures that can be difficult to comprehend for a beginner. Lack of sufficient knowledge and frequent incidences of frauds have kept most people at a bay. Therefore, it is suggested to conduct thorough market research beforehand at a personal level, and then take every step carefully to refrain from any fraudulent activities.