All you need to know about assets tokenization
Cryptocurrencies have become an integral part of the financial market. But today they are no longer the only way to apply blockchain technology in finance.
Crypto assets — tokenized shares, bonds and other securities and financial instruments — are becoming more and more popular. Here’s more details about their nature and distinctive features.
How does it work?
Tokenized shares are securities that have been converted into digital tokens using blockchain technology. A security token is secured by a real asset and linked to its value. It is impossible to forge such a digital share. Unlike ultra-volatile cryptocurrencies, which can rise in price quickly and become just as cheap, tokenized shares are considered more reliable assets because they are characterized by material rights.
In fact, these are real company shares: they certify ownership, provide an opportunity to receive dividends and real income on the difference in prices. All this is secured by the token manager with a smart contract — a computer program that monitors and ensures that the transaction is performed. Not only securities can be tokenized, but any assets in general: real estate or art objects, precious metals, copyrights. Security tokens are subject to regulations governing the circulation of securities and impose liability on companies that issue them.
Security tokens vs. traditional shares
A digital token retains all the characteristics of a traditional asset, to which the advantages of a blockchain token are added. Namely — safety, transparency, speed and cheapness. For example, the blockchain removes intermediaries from trading. Transactions with tokens do not require brokers, banks or depositaries. There are two other advantages to this: reduced fees and faster trading.
Also thanks to the blockchain, the regulators will be able to monitor all transactions, and smart contracts can determine the buyer’s identity, the time of the transaction, the income distribution scheme or the payment of dividends. This increases the transparency of transactions.
Both ordinary funds and cryptocurrencies can be used to buy tokens. The absence of infrastructure barriers and costs gives poor and unprofessional traders opportunities previously available only to institutional investors. Tokenization is also good for low-liquid assets such as works of art and real estate. Such expensive assets can be broken down into tens, hundreds or thousands of inexpensive tokens, which will increase their liquidity and availability to investors.
An example is the $30 million East Village residential complex in Manhattan, which is tokenized on Ethereum. Each of the flats in it covers 158 square meters and would clearly be available to a few — but thanks to tokens, not the richest investor can invest in such a property.
STO
Companies can place tokenized shares through an STO — security token offering. This is the name given to the form of investment attraction, where the object of investment is security token.
The STO is legally compliant with the requirements of key regulators, including the US Securities and Exchange Commission (SEC). A company wishing to conduct an STO must pass a regulatory review, disclose information about itself and publish reports on its activities. This reduces the risks for investors.
In essence, an STO is a faster and cheaper equivalent to an IPO. Listing costs are reduced by not having to involve intermediaries like investment banks. Audit and underwriting procedures for blockchain projects are also simpler. And almost any private investor can participate in an STO. In theory, digital securities make it possible to abandon the classic IPO on the stock exchange altogether. A crypto asset helps a company obtain financing, while a digital tool allows interested investors to make a profit.
Where can I buy it?
Although the crypto market is already strongly developed, the market for other innovative assets is just beginning to evolve. It is only recently that the world’s first stock exchanges trading in tokenized shares have appeared. For example, the Estonian DX.Exchange sells security-token companies with NASDAQ.
Or the Belarusian Currency.com, where you can buy tokenized shares of large American companies, as well as digital gold, oil, gas and other raw materials. Among the assets there are even tokenized Belarusian government bonds.
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