What is a Tokenized Stock? Are they Security Tokens?

Security Token Market (stomarket.com) is now tracking over forty tokenized stocks from Binance and FTX! These shares include public-market favorites like Gamestop, Tesla, and Coinbase, but also include less accessible shares like Grayscale Bitcoin Trust, which trades exclusively on OTC Markets, not NASDAQ or NYSE. These shares have seen outstanding volume, consistently totaling seven figures in daily trading volume, but what are they?

Many have asked, and we’re here to set the record straight, once and for all.

As you know, we’re all about security tokens around here. A security token is a digital representation of a real-world asset. The physical asset is managed by a transfer agent or issuance platform, while the digital representation of the underlying shares can trade freely by eligible investors around the world!

While blockchain technology is used for asset transfer, automation of inter-jurisdictional compliance requirements, and decentralized financial protocols, the underlying asset is still managed through a centralized registry to maintain the security of the financial system.

In this way, blockchain can optimize clearing/settlement processes, compliance registration/management, and other key facets of a regulated transaction, while still maintaining the fidelity of a security’s ownership.

Recently, Binance announced the listing of multiple tokenized shares of public market equities, initially launching with Coinbase, Tesla, and Microstrategy, before adding Microsoft and Apple later. This was a head-turner for many in the security token and crypto industries alike, as demand for international access to equity investments has increased tremendously in recent months.

While similar in name and structure, tokenized stocks differ from security tokens in a few key ways:

• Not real ownership — these ‘shares’ function more like derivatives of the publicly traded stock. A holding company owns the underlying shares and the crypto exchanges manage the outstanding tokenized shares. At this time, no prospectus is available to verify the total circulating supply, redemption schedule, shareholder rights, or other investor protections. Security tokens follow all regulatory guidelines, offering investors all required prospectus and diligence documents to evaluate any investment opportunity
• Not self-custodied — you cannot remove these tokenized stocks from the original exchange. These shares are managed by the crypto firm and cannot be moved from exchange to exchange. On this same note, different tokenized stocks on different exchanges trade at different times and offer different investment rights to investors, which can be confusing
• Not endorsed by the underlying issuer — unlike Overstock’s Digital Dividend, which is a security token representing Class B shares of Overstock equity, tokenized stocks have not been issued or supported by the company that the tokens represent

Check out the live prices on stomarket.com now! These assets have been fascinating to watch and present an amazing opportunity for arbitrage investors who want to trade the difference between these shares and the public market counterparts.

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