What Are Tokenized Stocks? How They Work, How They Differ From Traditional Stocks & How to Invest

In simple language: One equity is divided into smaller, more affordable units, which provides fractional ownership to the buyer.

To understand what a tokenized stock is, we have to first understand what tokenization is. Tokenization is taking a real-world asset like stocks and representing it as a token on a blockchain. There are several different asset classes available for this like gold, real estate, stocks, etc.

What Are Tokenized Stocks?

To understand tokenization, we have to first understand what blockchain is. Yes, we hear about it every day, and cryptocurrencies are mostly traded on this platform,, but tokenization is a bigger part of the blockchain too.

A blockchain is a decentralized, distributed digital ledger that officially records information or transactions across a network of computers. Blockchain gets its name from how the technology physically structures and stores data. Records of transactions are grouped into data "blocks". Once a block is full, it is sealed with a unique cryptographic fingerprint (a hash) and securely linked to the immediately preceding block, creating a chronological "chain" of records

There are blockchain-based digital tokens taken from real-time stocks, which give fractional ownership of the share and can be tracked 24/7 with faster settlements, making this one of the most interesting developments in capital markets, and these are called tokenized stocks.

Imagine investing in a company's initial public offering (IPO). Once your application is successful, the shares are credited to your Demat account, where they are held electronically for trading and investment. Tokenized equity shares work in a similar way, but instead of being stored in a Demat account, your ownership is represented by digital tokens on a blockchain and held in a compatible crypto wallet. These tokens mirror the value of the underlying shares and can be traded on supported digital asset platforms.

Tokenized Stocks vs Traditional Stocks: What's the Difference in Ownership?

• The very first difference is that traditional stocks are issued in stock markets like NYSE, NASDAQ, and tokenized shares are traded- bought and sold on blockchain.

• Traditional stocks are kept in brokerage accounts, and tokenized stocks are kept in digital wallets.

• Regulations for tokenized assets are still evolving, while stock markets around the world are regulated by official bodies like the Securities and Exchange Commission (SEC) in the US and SEBI in India.
  Advertisement
• Settlement of trades in tokenized assets happens almost instantly, while stocks are usually slightly time-consuming and usually T+1.

• Depending on the specific structure, token holders usually get neither voting rights or invitations to shareholders' meetings nor direct shareholder protections or dividend payouts as a traditional shareholder gets.

Tokenized Stocks: Risks, Regulations & What Investors Should Know

• Stocks, by definition, are riskier than safe-haven gold, bonds, and other assets. If the value of a certain stock falls, the value of the tokenized stock will follow the footsteps of the traditional shares.

• Laws and regulations are still not in place for tokenized stocks, so the risk of losing money remains.

• Digital assets are always more vulnerable to cybercrime and online fraud than traditional stocks, as everything is poured inside a digital wallet.