Tokenized Securities

Type

Digital representation of traditional financial assets

Purpose

Reduce friction in creation, buying, and selling of securities; address IPO market burdens; modernize markets for a global audience

Key Benefits

Fractional ownership, 24/7 trading, Greater liquidity, Streamlined post-trade processing, Faster settlement, Enhanced transparency, Modernization of markets

Technology Used

Blockchain, Smart Contracts

Challenges/Risks

Regulatory uncertainty, Technical vulnerabilities, Liquidity challenges

Underlying Assets

Stocks, Bonds, Real Estate, Equity, Debt instruments, Fund structures, Private company shares

Regulatory Requirement

Compliance with existing securities regulations, Need for regulatory clarity

Distinction from Cryptocurrencies

Represent external, real-world assets, not native to their blockchains

2019

2020-2025

Tokenized securities are traditional financial assets (like stocks, bonds, or real estate) that have been converted into digital tokens on a blockchain. They represent ownership rights to an underlying asset, just like conventional securities, but with the technological advantages of blockchain. Key point: Tokenized securities blend traditional finance with blockchain technology, creating digital versions of familiar investment vehicles. [...] Tokenized securities are digital representations of traditional financial assets like stocks, bonds, or real estate, issued on blockchain networks to offer benefits such as fractional ownership, 24/7 trading, and greater transparency. While they enhance access and efficiency in investing, they must comply with existing securities regulations and carry unique risks like regulatory uncertainty, technical vulnerabilities, and liquidity challenges. ### Table of Contents [...] Unlike cryptocurrencies such as Bitcoin or Ethereum, which are native to their blockchains and don't represent external assets, tokenized securities have intrinsic value tied to real-world assets. ## How Blockchain-Based Securities Work These digital asset tokens operate on blockchain networks through smart contracts—self-executing agreements with the terms written directly into code. Here's a simplified breakdown:

Tokenized securities are \\digital tokens that represent ownership in real-world financial assets\\. They’re created using blockchain technology, but they function just like traditional securities from a legal and regulatory standpoint. In other words, if you tokenize a share of stock, it’s still a stock. If you tokenize a bond, it’s still a bond. The token changes how it’s issued, tracked, and traded, but not the nature of the asset. ### Where Are Tokenized Securities Held? [...] Tokenized securities are just digital representations of traditional financial assets. Almost anything with defined ownership rights can be tokenized and issued on a blockchain, provided the legal and regulatory framework supports it. Here are some common examples of what can be tokenized: \ \\Equity:\\ Shares in private or public companies \ \\Debt instruments:\\ Bonds, notes, or other fixed-income products [...] In many of these examples, tokenizing the asset results in a tokenized security, particularly when the token grants investors ownership rights, profit participation, or voting power. That includes tokenized stock, debt, and most fund structures.

Benefits A new “token economy” offers the potential for a more efficient and fair financial world by greatly reducing the friction involved in the creation, buying, and selling of securities. We see four key advantages that tokenization provides for both investors and sellers: • • Greater liquidity By tokenizing assets—especially private securities or typically illiquid assets such as fine art—these tokens can be then be traded on a secondary market of the issuer’s choice. This access to a [...] The tokenization of assets refers to the process of issuing a blockchain token (specifically, a security token) that digitally represents a real tradable asset—in many ways similar to the traditional process of securitization, with a modern twist. These security tokens are created through a type of initial coin offering (ICO) sometimes referred to as a security token offering (STO) to distinguish it from other types of ICOs, which can produce different tokens such as equity, utility, or payment [...] There has been a considerably uneven approach so far to regulating and accepting tokenization, but there are signs that the traditional market infrastructure is adapting to the token economy. For example, both the US SEC and EU’s ESMA have made comments, albeit generic, in this area. Meanwhile, Malta and Switzerland have made more progressive plans to accommodate new marketplaces for tokenized securities1. Having a clear regulatory framework is of vital importance Inside magazine issue 19 |

Tokenized stocks are digital assets that track the price of real-world equities, such as shares in public companies. Offer precise fractional investment and may offer fast settlement compared to traditional equities. DeFi integrations allow tokenized stocks to be used as collateral, earn yield, or provide liquidity. Ideal for both crypto investors or those looking to easily gain exposure to the stock market. [...] Tokenized stocks are blockchain-based digital assets designed to represent economic exposure to traditional stocks. They enable investors to buy, sell, and hold fractionalized ownership of real-world companies in the form of tokens. Depending on the issuer and structure, tokenized stocks may represent actual share ownership or synthetic exposure. These tokens track the price movements of real-world shares and enable fractionalized, round the clock access to global markets. Tokenized stocks may [...] ### What Is a Tokenized Stock? A tokenized stock is a blockchain-based token that represents exposure to a traditional equity, such as shares in Apple (AAPL) or Tesla (TSLA). These tokens are typically designed to mirror the price of the underlying asset, meaning if the real stock price goes up or down, the value of the token is designed to follow suit.