Tokenizing Stocks: Age of Financial Security

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The stock market has never been as inclusive and accessible as it is now. No matter what education you have, where you live, and what you do – everyone can get a slice of the global financial pie. There are dozens of great apps for trading, market analysis, and personal finances management services. We’ve come a long way since the days of exclusive paper-based exchanges. Last year the volume of stocks traded worldwide reached $60.3 trillion.

And yet, there are still some significant limitations. If a company’s stock is not listed on the local exchange – traders in this region can’t buy it. Certain options, like participating in hedge funds or VC funds, are only available by acquiring an ‘accredited investor status, which might be difficult and expensive to obtain. And the price of some assets might hinder initial plans for putting money to work.

For example, a trader has a sound plan of buying Amazon stock. At the time of writing, one share of the e-commerce giant costs $2 890. Even if they have that kind of disposable savings, the trader might not be able to buy many shares, which severely limits future gains

Luckily, there is a blockchain-based solution. Same as most financial assets, stocks can be divided into portions. The latest FinTech technology makes the earning of passive income a much more agile process.

What are tokenized stocks?

Tokenization of stocks is the process of transferring ownership of financial securities to issued digital tokens, which are then put on sale. The price of each token corresponds to the portion of the security. Traders can buy any amount of tokens, essentially acquiring ownership of the desired portion of the stock. And as with regular stock trading, tokens can be sold later for a higher price.

Tokenization of stocks is the process of transferring ownership of financial securities to issued digital tokens, which are then put on sale. The price of each token corresponds to the portion of the security. Traders can buy any amount of tokens, essentially acquiring ownership of the desired portion of the stock. And as with regular stock trading, tokens can be sold later for a higher price.

Tokenized stocks are still a relatively new and fresh sub-sector of Decentralized Finances. Currently, only a handful of platforms provide access to this type of service. Organizing tokenized stocks trading is not easy, nor is it cheap to set up. But it’s easy to use and the incredible potential of this new way of trading is worth every little bit of effort and every cent.

How do tokenized stocks trading work on DeFi?

Let’s talk about the process in more detail. Each token is a portion of the security that retains all the qualities of the original asset. The market value of the token equals the value of the corresponding portion of the original asset. If the price of the asset changes, the price of the token changes as well.

Let’s take a look at the Amazon stock again – it still costs $2890. Let’s say that a company buys 10 shares, divides each one into 10 pieces and issues a token for each piece. So now there are 100 tokens, each worth $289.

A trader might not be willing to pay for a full share but wants to buy 3 tokens for $867. Shortly after, the price of the Amazon share goes up to $3200. All the acquired tokens go up in value as well – now each of them is worth $320 and the trader has the stock worth $960. The trader can then sell them separately or all at once.

This is just a simple example. Stocks can be divided into much smaller pieces that retain the qualities of the whole share. Traders can literally pay one dollar and own a little part of the world’s most valuable companies.

What does blockchain bring to stock trading?

Blockchain-based trading is fast. No one has to wait for a bank transfer to complete or for the exchange to approve a transaction. It’s mostly as simple as hitting “Buy” or “Sell” – and it’s done.

Why would one need speed in trading? Take a look at this graph demonstrating the price dynamic of Tesla’s stocks of the last month. For a few days straight, it gained almost $100 every 24 hours.

Why would one need speed in trading? Take a look at this graph demonstrating the price dynamic of Tesla’s stocks of the last month. For a few days straight, it gained almost $100 every 24 hours.

Stock trading is full of moments like this one, where reacting fast can secure gains or help avoid losses. Traditional banks and exchanges have limits and might be prone to mistakes. Tokenized trading is free of these limitations.

All the transactions are always secure – there is no room for the system’s or app’s mistake, all the information is recorded on the blockchain.

Finally, tokenized stocks trading also operates 24\7. It might not seem to be a big deal at first glance, yet it could be a ‘make-or-break” factor. Maybe a trader is in Japan, it’s closing time on the exchange and Tesla just announced its new model so its stock is about to receive a big boost. Traders in Europe and the US can ride the wave up but their Japanese colleagues are out of luck – the local trading day is over. What do they do?

If they know how to use tokenized stocks, they can simply buy them whenever they like. Every hour is a trading hour on the blockchain.

Do I need extensive crypto or blockchain knowledge to trade tokenized stocks?

Out of all the DeFi services, tokenized stock trading is probably the most simple – at least on the user’s side. There are no complex transfers or detailed asset management skills involved. Holders simply buy the assets and withdraw them at any time.

If you’ve ever tried using any investing app, it’s really not that different – only instead of using fiat money to buy stocks, you use crypto. And if there are any questions, our Support Team will happily guide users through their new source of income.

Traditional Stocks vs Tokenized Stocks – is there a difference?

Why would someone choose tokenized stocks over just becoming an accredited investor, as most ‘big traders” do?

Well, first of all, here is a list of some of the criteria that’s needed for someone to qualify for the accredited investor status in the United States (where the market is relatively free):

  • Total assets of over 500,000 USD.
  • A net worth of 1,000,000 USD (it can be joint net worth).
  • Any director, executive officer of the issuer of securities being sold.
  • Net yearly income of over 300,000 USD.

Do you meet these requirements? If so, great! But you would still have to go through a massive amount of paperwork and wait for the approval. The other problem is that usually, no one actually gets any significant advantages by becoming accredited. Whereas with blockchain-based trading, there is less regulation, less government interference, traders can buy and sell more and they can also do it faster.

The other problem is that usually, no one actually gets any significant advantages by becoming accredited.

In other words, tokenized stocks traders get exactly the same opportunities by trading on DeFi platform as traditional traders do; but, they don’t have to go through a bureaucratic process or pay as much tax.

What can I buy right now?

Since tokenized stocks are still an emerging sector, skeptics might be wondering if there is any sense in buying them now. And rightly so – new financial markets usually need some time to really take off.

However, blockchain moves very fast these days and the market is already ripe for the taking. Anyone can already buy the tokenized stocks of these major companies:

  • Apple
  • Google
  • Netflix
  • Toyota
  • Amazon
  • Facebook
  • Tesla
  • SpaceX.
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