Tokenized stocks are nothing but virtual assets that pantomime the price of publicly traded stocks. This helps the crypto traders to avail a glimpse of the price activity of stocks without departing from the crypto market.
What Are Tokenized Stocks?
Cryptocurrency and stocks are extensively different from each other. Tokenized stocks are somewhere between the two. A tokenized stock is similar to an equity share in a trading company for all, similar to stocks traded in S&P 500 or NASDAQ. The only difference is that tokenized stocks are available in the form of virtual assets.
When an investor deals with a conventional stock in an exchange or IPO, the equity appears in the brokerage account of the investor. Tokenized stocks are dealt with in a similar way, however, it has one important difference. Since these shares are virtual and built on blockchain technology, they can be traded and purchased only through a cryptocurrency exchange.
The tokens are recorded on the crypto exchange platform where the stocks can be acquired and traded similar to other cryptocurrencies. The ones who hold the stock token can gather disclosure to the similar stock as if they inhabited it consisting of revenue configurations wherever required.
Why Are Companies Tokenizing Equity?
The main purpose why firms are tokenizing equity is similar to the reason why they issue stock shares, which is to increase the capital. There are some significant goals to raise extra capital by handing out digital tokens rather than handing over the conventional method of IPO or issuing extra shares.
Since the objective of tokenizing equity is to boost capital, the digital equity tokens are acting as stocks, which sometimes may be Pandora’s box. Suppose, the federal government is not yet ready to handle cryptocurrencies like Bitcoin regulations, the tokenized equity will force the securities and exchange commission.
The tokens issued by the company as stocks have similar functions and features, making them secure. This means that it requires registrations and filling up required details. This brings in the security token offerings similar to ICO (initial coin offerings), however, it’s added with details that ensure the company issuing tokens representing equity.
Advantages of Tokenized Stocks
The benefits of tokenized stocks are similar to the ones trading regular percentages of capital with a licensed brokerage.
Since a vast number of people can access the tokenized stocks in comparison to conventional shares, the tokens have a chance of better liquid flow in comparison to the traditional ones traded on primary brokerages.
Faster Clearance And Transaction
In accordance with the exchange and network, token transactions may settle in minutes compared to the conventional stock transactions which take days to clear.
Easy To Collect Fractional Shares
In traditional stocks, fractional shares are only accessible from particular firms. However, for tokenized stocks, fractions are available from crypto exchanges.
There are several crypto exchanges that do not charge any extra fees for trading tokenized stocks.
The best advantage of tokenized stocks is that they can be sold or bought at any time. The crypto market is always open for traders. However, in the case of some tokens, the time is constrained to regular hours to ensure it’s a duo with traditional stocks.
The best part about cryptocurrency is that anyone can trade tokenized stocks. Any investor who wants to trade but has no access to traditional financial platforms can use tokenized stocks instead. However, to conduct such actions, investors need to buy Bitcoin with cash from a Bitcoin ATM and send it to their wallet and deposit it in the crypto exchange that trades tokenized equity. Since tokenization is a new sensation of crypto, it is more like an after wave of DeFi innovation in the last few years.