Concept

A tokenized stock is a share of stock that is issued as a digital security- that is, a crypto tokens that is issued and trades on a blockchain. It represents a equity share in companies that have gone public on an exchange (stock market), local or in a foreign country. The token reflects the performance of the stock, rising or falling value of the underlying stock over time. Issuance and trading of such stock utilizes smart contracts and the capabilities of blockchain, where trading takes in a decentralized market. This stock belongs to the broader category of tokenized securities (specifically, tokenized equity).

Issuance

The issuance of tokenized stock takes place in a process similar to that of an initial public offering (IPO) and capital raising in traditional finance. However, it combines the capabilities of fund mobilization with the power of blockchain technology and digital tokens, in the crypto space, to increase flexibility and speed of the issuance process. Tokenization is a smooth way to raise capital (long term capital as embodied in equity) through issuance of shares in the forms of digital assets, such as a crypto coin or token. Tokenized equity is a form of tokenized asset whose underlying is a share of a listed company. When purchasing a stock token, the digital coin or token will be credited to the buyer’s blockchain-hosted account. Trading and transferring of equity shares on a blockchain is much more flexible as a means of raising funds. Other benefits include low cost and wider participation base that allows for direct participation of interested investors.

Token offerings

Investors purchase tokenized stocks through security token offering (STO)-  an offering that involves issuing security tokens to users and investors in the market. Similar to an initial public offering (IPO) in the field of investing and investment banking, an STO (security token offering) revolves around issuing divided shares (units) in an asset or venture or project (a financial security or share of stock in an IPO, and a token in the case of STO). Tokens, per se, represent assets and are listed on networks/ platforms in a process similar to conventional offering. An STO is a type of public offering whereby tokenized securities (tokenized digital securities), also known as security tokens, are sold on a security token exchange or similar venues. Transactions are validated and maintained using a blockchain virtual ledger. STO was introduced as a means by which tokens remain compliant with applicable laws and rules for securities (given that certain regulatory guidelines classify tokens as securities). This type of coin offering is quite similar to an initial coin offering (ICO) but is particularly compliant with securities regulations in the place of issue and offering of the tokens. STOs are issued subject to certain regulatory and legal obligations for issuing and selling of equity (equity interest) in the issuer.