Concept

An equity token offering (ETO) is an event by which companies issue and offer equity in their business and operations (collectively the entire company) for sale to the public in the form of equity tokens. It is a type of token offering in which the underlying issuance instrument is an equity token (per se, an equity token that represents ownership (equity interest/ stake) in an underlying asset, usually a share of stock of a company (the issuer). The process is a fundraising event whereby stock companies can sell digital tokens representing ownership in a company or venture (broadly, any type of equity holdings). The issuance process is similar to share issue, but is carried out on a network/ blockchain. However, the platforms that conduct this process are different. Like the traditional offering process, equity token offering begins with a campaign to investors (vary by jurisdiction and regulations) bringing to their attention that the company intends to offer equity tokens.

Equity token

Equity tokens are a form of security token and store contractual information as blocks of encrypted data on their corresponding blockchain. These tokens are specifically issued through the equity token offering (ETO) process and are tradable on the blockchain, offering their holders more voting transparently as to decision making and control of voting rights of the issuer through the blockchain. Equity tokens holders become shareholders in the token issuer, and all amounts paid to acquire the issued tokens are directly invested in a company’s operations. As a subset of security tokens, equity tokens providing holders with rights similar to those vested by means of traditional equity. The ownership rights include equity stake, profit-sharing, or voting rights. By nature of underlying assets or holdings, these tokens are backed by real-world assets (RWAs), such as equity shares, real estate, or commodities, and hence are subject to  regulatory frameworks for compliance with securities laws.

Offering process benefits

An equity token offering (ETO) is an offering based on a hybrid model combining the process of conventional equity financing with the capabilities of blockchain technology. It involves certain stages for issuing shares of a company in the form of digital tokens, representing ownership or a promise of future profits or other privileges. These tokens are blockchain-based, that is, they are issued and traded on the blockchain (in the digital sphere), providing for the elements of transparency, security, and speed to the transaction process.