What if you could trade stocks 24/7? What if you didn’t have to deal with geo-location barriers? What if you could have instant liquidity the moment you make a trade? What if you could buy only a fraction of a stock?
As technology continues to develop, investment opportunities are growing. One such investment opportunity, tokenised stocks, is disrupting the financial industry as we know it. This article will discuss the concept of tokenised stocks, how they work, and the best platforms where they can be bought and traded.
What are tokenised stocks?
A tokenised stock is the synthetic version of an actual stock. The key difference between the two is that since a tokenised stock is a digital asset, it can be bought and sold from anywhere in the world, just like you would with any cryptocurrency.
It’s important to note that tokenised stocks do not provide ownership in a company like a traditional stock would. Instead, they are a derivative that tracks the performance of an underlying stock. Therefore, should you buy a tokenised stock from Amazon, you don’t actually own a piece of the Amazon corporation. You’re instead purchasing a derivative that is collateralized by a share of Amazon and tracks its performance.
Best places to trade tokenized stocks
Now that you understand what tokenised stocks are, along with their benefits and limitations, let’s take a look at what we feel are the best platforms to buy and trade tokenized stocks. As with anything involving investing, you should always do your own research before choosing a platform.
FTX is a cryptocurrency exchange built by traders for traders. FTX offers innovative products, including industry-first derivatives, volatility products, options, and leveraged tokens. FTX strives to provide a platform that isn’t just sophisticated enough to draw the attention of professional trading firms but also intuitive enough even for first-time users.
One of the primary benefits of the FTX exchange is its ever-growing popularity. FTX is seen positively by the crypto trading community at large and boasts high trading volumes as a result. This is most impressive when considering that the platform is still relatively young, having launched in May 2019.
FTX provides users access to a range of innovative trading products, including prediction markets, Bitcoin options, 20 perpetual swaps, and over 45 leveraged tokens. In addition, FTX provides an OTC service for individuals interested in purchasing large quantities of crypto. An app also exists that allows users to keep current on their accounts while they’re out and about.
Additionally, FTX supports transfers in fiat and a wide assortment of cryptocurrencies, including Ethereum, Bitcoin, Litecoin, and a range of stablecoins. And of course, the FTX platform offers tokenized stocks which you can learn more about here.
- Trade “anything to anything”, i.e. stocks for crypto
- U.S. equities are only available to U.S. and South American users
- Token holders are entitled to dividends on equity stocks
- Tokenized stocks can be traded 24/7
- Tokenized stocks are not available for residents of restricted jurisdiction
- Token holders can’t attend annual general meetings (AGM)
- Token holders don’t have voting rights
Availability: US, South America
Uphold holds the distinguished title of being the world’s first anything-to-any cryptocurrency and equities exchange. Having first come onto the scene in 2015, Uphold offers users a way to buy and sell a wide assortment of coins and trade across different asset pairs.
Being one of the few multi-asset trading platforms in the world, it should come as no surprise that Uphold brings many features to the table. For one, users can trade over 120 cryptocurrencies on the platform. But the special thing is that eligible nationalities can swap one asset for another. For example, you can trade Bitcoin for Amazon, or gold for Microsoft.
The trading fees are acceptable, although not as low as competitors. Another standout feature of this platform is its 24/7 customer service. Users can also access Uphold’s staking products, a suite of tools that let you earn staking rewards from some of the popular proof-of-stake chains, the Upthold crypto debit card, precious metals, and more.
- Token holders are entitled to dividends declared on equity stocks
- Doesn’t charge transaction fees for trading in stock tokens
- Token holders have no voting rights
- Stocks aren’t available for users outside
- Trading hours are limited
- Token holders can’t attend AGMs
Availability: Europe, Turkey, UAE
This Vienna-based fintech is one of the leading cryptocurrency exchanges in Europe. They offer more than 50 cryptocurrencies and digital assets and are on a mission to democratize the complex world of investing.
Bitpanda was initially founded in 2014 in Vienna, Austria. When it comes to limits and fees, as long as you have a verified account (that you can sign up for after a short verification process), there are no limitations. Users can trade as much as they desire on any given day.
However, depositing and withdrawing come with limitations, with maximum deposits sitting at 500 EUR limits per day and withdrawal limits being 5,000 EUR per day.
Expect to pay 1.49% in trading fees in addition to other fees should you pay through any other method than a bank transfer. Further fees may apply for depositing and withdrawing cryptocurrencies. Bitpanda’s fees are considered to be on the higher end of the spectrum for a crypto trading exchange.
If you use Bitpanda’s native token, BEST, you can expect a medley of benefits, such as lower overall fees when paying your trading premiums. In addition, users can also benefit from 20% lower deposit fees should they use a credit card and 25% lower deposit fees for SOFORT.
Advertised with the clever tagline “wall street without the walls,” users can purchase tokenized stocks on the platform commission-free. Tokenized stocks offered by Bitpanda are referred to as “Bitpanda Stocks,” and you can buy them here.
- Bitpanda stocks can be traded 24/7
- Token holders are entitled to dividends declared on equity stocks
- High fees
- Token holders can’t attend AGMs
- Token holders are not entitled to vote
4. Mirror Protocol
Mirror Protocol is a decentralized platform that seeks to bridge cryptocurrency with traditional finance through synthetic equities. Mirror Protocol tracks the price of stocks, exchange-traded funds, futures, and other traditional financial assets.
Mirror Protocol allows the creation of fungible assets, known as “synthetics,” that track the price of real-world assets. Mirror synthetics are intended to be used as fundamental building blocks in smart contracts. It’s also their intention to bring the world’s assets to the blockchain.
At its core, Mirror is a Defi protocol powered by smart contracts on the Terra network that enables the creation of synthetic assets called Mirrored Assets (mAssets). By mimicking the price behavior of assets in the real world, mAssets gives traders open access to price exposure no matter where they are globally, all without owning any tangible assets.
The process of minting mAssets is entirely decentralized and is undertaken by users of the network by opening a position and depositing collateral. Mirror guarantees that there is always enough collateral on hand within the protocol to cover mAssets.
Mirror is unique in that it’s wholly directed by the community that stands behind it. Users are incentivized by MIR (Mirror Protocol’s native token) incentives, and the protocol is constantly evolving through the ideas of its community. You can learn more about Mirror Protocol here.
- No need for KYC to trade assets
- Completely decentralized platform
- mAssets can be traded 24/7
- mAssets can be traded on Ethereum (Uniswap) as well as the Binance Smart Chain network (Pancakeswap)
- Token holders ARE NOT entitled to dividends declared on equity stocks
- Token holders aren’t allowed to attend the AGM
- Token holders do not have voting rights
5. Synthetix Exchange
Synthetix Exchange is a derivatives liquidity protocol providing the backbone for derivatives trading in Defi, allowing any person, no matter where they are in the world, to gain on-chain exposure to a wide variety of assets.
Users of Synthetix Exchange can capture the price movements, fiat currencies, popular cryptocurrencies, commodities, stocks, and much more with zero slippage.
Synthetix allows users to leverage a suite of synthetic assets to enable them to access real-world assets like gold, indexes of assets from industries like Defi, fiat currencies like USD and short positions on the most popular cryptocurrencies like BTC.
Users can stake SNX, Snthetix’s native coin, mint and burn Synths and easily monitor their collateralization levels with the Synthetix Staking system. You can get started on the Synthetix Exchange platform here.
- No need for KYC to trade Synths
- Synths can be traded 24/7
- Token holders aren’t entitled to dividends declared on equity stocks
- Token holders aren’t allowed to attend AGMs
- Token holders do not have voting rights
Platform features comparison
As you can see, we’ve provided a good mix of platforms that are both centralized and decentralized, each with their own pros and cons. Simply looking at these platforms in list form may not do them justice, however. To provide a more focused perspective, let’s look at a direct comparison of the platform features.
|Platform||Centralized/Decentralized||Pays Dividend||KYC Required||Availability|
|Uphold||Centralized||Yes||Yes||U.S., South America|
|Bitpanda||Centralized||Yes||Yes||Europe, Turkey, UAE|
|Mirror Protocol||Decentralized||No||No||No restrictions|
|Synthetix Exchange||Decentralized||No||No||No restrictions|
What is asset tokenization, and why is it disrupting the financial system?
Asset Tokenization is the process in which a digital token is issued in a blockchain that represents an asset in the real world. The blockchain guarantees that once you purchase tokens representing a physical asset, no one authority can erase or change your ownership.
Asset tokenization is becoming increasingly popular in a number of industries. Whether intentional or not, tokenization has a disruptive impact on the financial system because it’s changing how we make traditional investments.
When it comes to the concept of tokenization, the possibilities are endless as it allows for both fractional ownership and proof-of-ownership. Companies can tokenize practically anything, whether it be sports teams, celebrities, racehorses, real estate, or artwork. Only time will tell how tokenization will ultimately end up impacting the financial industry.
Benefits of tokenized stocks over real stocks
Tokenized stocks differ in several ways from real stocks, which give them unique properties that some may see as benefits. These include:
The removal of centralized intermediaries
Tokenized stocks do not require banks, brokers, or fiat currencies. One of the primary draws of cryptocurrency is that it’s decentralized, meaning anyone in the world, no matter where they live or the laws governing their nation, can buy or sell crypto. In the same vein, tokenized stocks eliminate barriers (such as bank accounts or citizenship) that may have made it difficult for some people to own stocks like Apple and Tesla.
Investors no longer need to purchase entire shares to have a slice of the pie. Instead, tokenized shares make it possible to buy fractionalized portions of stock. This is excellent news for people who cannot afford shares in massive corporations like Amazon, which sits at $3600 per share as of the time of this writing. Fractional ownership means anyone with any sized budget can try their hand at investing.
Since tokenized assets can be reached by a much larger group of potential investors, the liquidity of shares will be improved vastly. This is a massive boon for shares that generally have low liquidity.
Markets are always open
The U.S. stock market is only open for a set amount of time during the weekday. Once it’s closed, you can no longer buy or sell stocks until it’s open again. However, tokenized stocks can be traded at all hours of the day, no matter where you are in the world. That means the market is always open.
Foreign investors have increased access to stocks
Foreign investors may have more difficulty accessing popular stocks such as Amazon, Apple, and Tesla due to a variety of reasons. Tokenized stocks make it easier to own stocks by making them more accessible and affordable.
Limits of tokenized stocks
The benefits of tokenized stocks are quite impressive, but that doesn’t mean they don’t have limitations. Let’s take a closer look at what you should be on the lookout for:
Potential lack of understanding
Let’s be honest with ourselves. Tokenized stocks are a relatively new concept. Investors who jump in with both feet without looking both ways may not completely understand how tokenized stocks work and may make a few mistakes along the way, losing money in the process.
It’s not completely clear how tokenized stocks are regulated. For that matter, we’re still not entirely clear on how the exchanges that sell them are regulated either. There have even been disagreements between exchanges and regulating agencies, so it’s safe to say only time will tell what type of regulation we will see in the future.
Investors aren’t actually buying ownership
Generally, when you buy a traditional stock, you’re purchasing a piece of the company, making you a partial owner. Ownership comes with all sorts of advantages, such as voting rights. Purchasing tokenized stock, on the other hand, does not give you ownership rights. Instead, you’re simply buying a derivative that tracks the performance of the stock in question.
To expand on the above point, tokenized stocks are designed to track the performance of an underlying security. So, in theory, everything should work without any issues. However, tokenized stocks are still a new concept with little track history and regulation. As a result, no one can definitively say whether or not they will track well.
What to consider when trading tokenized stocks
Trading tokenized stocks undoubtedly provides an opportunity to millions of people worldwide to invest in major companies like Apple, Amazon, and Tesla. That said, there are several factors to keep in mind when trading tokenized stocks.
Considering the platform’s security is very important to ensure your personal and digital assets are in safe hands. First, look into the type of security your platform of choice provides. The basics typically include two-factor authentication (2FA) and identification verification, amongst other basic and more advanced security measures.
Also, consider that because tokenized stocks are derivatives that track the performance of an underlying stock, you don’t have the usual rights of a traditional stockholder, such as attending annual general meetings (AGM).
Consider that regulations are unclear at the moment, which opens you up to the potential of being scammed. While the companies we’ve mentioned above are considered to be good overall picks, you should always be on your guard. If an offer sounds too good to be true, it usually is, and you should steer clear to keep yourself safe.
Frequently asked questions
How is tokenized trading regulated?
It’s not entirely clear how tokenized stocks are regulated. However, we can look back to 2018 for something of a clue of what we can expect in regulation, where the U.S. Securities and Exchange Commission (SEC) stated that the vast majority of coins and tokens offered through ICOs are considered to be securities and would be regulated in this manner.
If a digital asset is considered to be a security, it falls under the purview of the SEC, requiring that it be registered. Not only that, but the platform offering the security must also register with the SEC as a national securities exchange.
As one would expect, exchanges that trade tokenized stocks are in complete disagreement. They argue that tokenized stocks are not real stocks and shouldn’t be regulated as an actual security. Unfortunately, this issue is still yet to be resolved. Therefore regulations are still unclear as of this time.
Who can trade tokenized stocks?
As long as you’re eligible on a cryptocurrency exchange or on the blockchain, you can engage in the trading of tokenized stocks. That said, always be aware that some exchanges are only available to individuals who are residents of a particular country. Look to their list of restricted jurisdictions to ensure you’re in the safe clear.
What hours do tokenized stocks trade?
One of the advantages of tokenized stocks is that they’re not limited by the hours of the stock market. You can trade tokenized stocks 24/7 with no time limitations. There are some exceptions to the rule, however. Binance, for example, has set trading hours. That said, the vast majority of the companies on our list do not.
Am I entitled to dividends?
Whether or not you’re entitled to dividends is dependent on the platform you decide to use. For example, FTX and Uphold offer users dividends declared on equity stocks, but platforms like Mirror Protocol and Synthetix Exchange do not pay dividends. So make sure you choose the right platform if you’re interested (or not interested) in receiving dividends for your investment.
The tokenization of real-world assets is disrupting industries left, right, and centre, and while some see this as a negative, many more see the positives. Tokenized stocks present exciting investment opportunities for enterprising investors.
Knowing what to consider before purchasing a tokenized stock, such as the pros and cons, will make you an informed investor. This new form of investment certainly isn’t for everyone, but it’s certainly worth considering for those who see the possibilities.