Tokenized Stocks Definition
Tokenized stocks refer to real-world securities or shares of a given company, that have been digitized and represented in the form of a token on a blockchain.
Tokenized Stocks Key Points
- Tokenized stocks represent actual shares of companies but in a digital form which exists on the blockchain.
- They allow for fractional ownership, enabling more investors to participate in trading or owning shares of high value companies.
- They operate on the principle of smart contracts, tracking ownership and facilitating transfers between parties.
- Trading these digital stocks happens on a 24/7 basis, unlike traditional stocks.
- The tokens are regulated and must comply with the financial regulations of the jurisdiction they are offered.
What are Tokenized Stocks?
A tokenized stock is a unit of ownership in a company digitally represented by a token on a blockchain. Through tokenization, a company’s stocks can be broken down into smaller fractions allowing more individuals to participate in ownership and transactions. This creates a more accessible and inclusive financial ecosystem that invites participation from a larger audience.
Why are Tokenized Stocks Used?
Tokenized stocks provide the ability to fractionalize the ownership of expensive assets, democratizing access to financial markets. They offer stockholders more liquidity as they can be traded any day, at any time, unlike traditional stocks which adhere to a set schedule defined by stock exchanges. Furthermore, these digital stocks are built on the concept of smart contracts that automatically execute transactions when predefined conditions are met. This enhances efficiency in the trading process.
How do Tokenized Stocks Work?
Similar to how a normal stock represents part ownership in a company, a tokenized stock does the same but in the digital realm of blockchain. A smart contract mirrors the properties of the real-world share, tracing its price changes, dividends, and corporate actions. This contract empowers individuals to buy and sell a fraction of that share on a blockchain, tracked via the token.
When can Tokenized Stocks be Used?
Tokenized stocks can be traded 24/7. Traditional stock exchanges operate only during specified trading hours, but the blockchain does not have this limitation, making tokenized stocks indefinitely available for trading.
Where are Tokenized Stocks Used?
Tokenized stocks can be bought, sold, or traded on any platform that supports them. This includes certain cryptocurrency exchanges, financial markets, and other blockchain marketplaces that adhere to financial regulations related to tokenized assets.
Who Regulates Tokenized Stocks?
Tokenized stocks are regulated by financial authorities in the jurisdiction they are offered. To ensure security and investor’s protection, token issuers must adhere to the appropriate securities laws. This includes Know Your Customer (KYC) and Anti-Money Laundering (AML) requirements, ensuring that the market for tokenized stocks remains trustworthy and fair.
