What are Tokenized Stocks?
Tokenized stocks are digital versions of traditional corporate stocks issued on a blockchain. Investors can gain price exposure to real-world stocks through blockchain-based tokens without having to use a traditional stock exchange or brokerage account.
Each tokenized stock is designed to mirror the price of the underlying stock and is typically collateralized 1:1 with actual shares held by a regulated entity. In some cases, tokenized stocks are synthetically tracked using financial instruments or price feeds, without actually holding the stock itself.
Because they operate on a blockchain network, tokenized stocks can be traded 24/7, with fractional purchases possible, and are accessible globally, reducing intermediary dependence. However, they typically have low liquidity and do not include voting rights. Furthermore, regulatory environments are still evolving, and implementation may vary by country.
Types of Tokenized Stocks
Tokenized stocks generally fall into two structures:
1. Asset-Backed Tokens
A regulated entity purchases and holds actual corporate stock, then issues tokens backed by these collateral. Tokens track the market value of the underlying stock, and their collateralization is verified through regular audits.
2. Synthetic Tokens
Without actually owning the underlying stock, they replicate stock price movements using derivatives, blockchain oracles, and smart contracts. While offering similar price exposure, they face greater price stability and counterparty risk.
How Tokenized Stocks Work
1. Custody
First, a licensed financial institution purchases actual shares of a listed company and safely stores them. These shares are managed under a regulated custody system and serve as collateral for tokens issued on the blockchain.
The custodian must comply with the relevant country's securities regulations and, through regular audits and proof of reserves, ensure that the number of issued tokens matches the number of shares actually held.
2. Tokenization and Issuance
Once the stocks are safely stored, the issuing institution issues a digital token representing the asset on the blockchain. This token tracks the market price of the underlying stock through real-time data feeds and blockchain oracles.
Services like Chainlink provide consistent price information across multiple blockchains (e.g., Solana, Ethereum) through verified price data, proof of reserves, and cross-chain interoperability protocols (CCIPs).
3. Trading
Issued tokens can be traded on centralized exchanges (CEXs) and decentralized exchanges (DEXs). They can be transferred and exchanged like any digital asset on the blockchain, with smart contracts automatically executing and recording transactions and settlements.
4. Redemption
Holders can redeem their tokens for stablecoins or fiat currency, depending on the current value of the underlying shares. Upon redemption, the tokens are burned, maintaining the token supply equal to the actual number of shares held.
Advantages of Tokenized Stocks
24-Hour Trading: Instant trading without waiting for traditional exchange opening hours.
Fractional Investment: Purchase only fractions of a stock, not entire units.
Global Accessibility: Accessible through a blockchain platform without local brokers or complex paperwork (though restrictions may apply depending on local regulations).
Fast Settlement: On-chain settlement within seconds.
DeFi Integration: Leverage collateral, participate in liquidity pools, and utilize yield-generating strategies.
Risks and Challenges
Tokenized stocks increase accessibility to traditional stocks through blockchain, but they also pose the following risks:
Regulatory environments vary across countries and are still developing.
Unlike traditional shareholders, they lack voting and shareholder rights.
Reliance on custodians, issuers, and smart contracts.
Technical flaws, operational mismanagement, and low liquidity risks.
The market is still small, making large-scale trading difficult.
Independent research and local regulatory compliance are essential before investing.
Concluding Thoughts
Tokenized stocks combine traditional stocks with blockchain technology to provide more accessible and flexible access to global markets. It offers advantages such as 24-hour trading, fractional-point investing, and fast settlement.
However, it's still an early-stage product, and regulatory uncertainty, market size, and custody risks must be carefully considered. It's important to fully understand how it works, pay close attention to regulatory changes, and invest within your tolerance.
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