New technologies are shaking up the world of finance. Instead of holding stocks, bonds, or investment fund units in a securities account, will investors soon be holding “tokens” in a digital wallet?
So far, these computer contracts based on the “blockchain,” a technology that allows information to be transmitted securely without centralizing data, have been used by Binance, the largest cryptocurrency exchange platform in the world, to offer investments in shares without going through traditional intermediaries.
Tesla company’s digitized shares, Tesla token, are already available on the market. The whole question is whether a token is comparable to financial security, subject to heavy European regulations requiring the publication of information for investors.
What exactly are equity tokens? Tokens are digital tokens known to be unforgeable thanks to blockchain technology. In the case of equity tokens, these tokens are linked to underlying stocks.
Their value closely follows the market price of these underlying securities. For Binance to offer “tokenized stocks” to investors, it has partnered with the Swiss company Digital Assets, which specializes in “tokenization,” as well as the German management company CM-Equity, which owns the underlying portfolio shares.
Blockchain El Dorado
The stakes of equity tokens are enormous. We are setting foot in what many consider the Eldorado of the blockchain ‘defi’ still representing only a tiny part of traditional finance.
Many observers say that the blockchain will revolutionize traditional finance because it makes it possible, subject to applicable regulations, to make the issuance and trading of financial securities more liquid, accessible, and less expensive.
The advantage of the “defi” is to offer greater automation with a high level of security. It also makes it possible to split the shares: one could thus buy a Tesla Token for one euro, while on the stock market, a share of the car manufacturer is worth more than 700 dollars.
How can you purchase tokenized shares?
Anyone can buy tokenized shares via STO. The procedure is similar to the ICO, initial coin offering. However, there is an important difference between an ICO and STO. ICO is like an initial public offering for cryptocurrency. When a new crypto is created, the creators need money to fund and put it on the market.
Crypto creators hope the currency will rise in price and investors will recognize its utility. Investing in an ICO cannot get you ownership in a company. Also, there are many cases where it turns out that the whole project was fraudulent. Security Token Offerings are unrelated to ICO projects and are not the same as crypto investments.
Moreover, security tokens operate under higher regulation levels. So, if you are comfortable buying any traditional security, you should consider purchasing a digitized version. Instead of a stock certificate, you will get its digital copy. Tokenized shares can be purchased on the Bittrex Global exchange or FTX exchange.
Regarding the regulations applied on tokenized shares they are the same as for other securities. The Securities and Exchange Commission (SEC) makes it clear that a tokenized stock is subject to the same regulations as regular stocks.