The financial world is witnessing a revolutionary merger between traditional equity markets and blockchain technology. Tokenized stocks represent a groundbreaking innovation that is transforming how we think about share ownership.
Tokenized stocks could be about to transform the financial markets, offering 24/7 trading and democratising access to global markets. As this technology gains momentum, understanding tokenized stocks will become essential for traders looking to stay ahead in an evolving investment landscape.
What Are Tokenized Stocks?
Tokenized stocks are digital representations of traditional company shares that exist on a blockchain. Each token corresponds to a real share of stock, maintaining the same value and often providing similar rights as traditional equity ownership.
Think of tokenized stocks as digital certificates that prove your ownership of actual company shares, but are stored on blockchain technology rather than in conventional brokerage accounts. When you purchase a tokenized stock, you are buying a token that represents ownership in a company.
Tip: The underlying shares are typically held by a regulated custodian.
The technology emerged as financial institutions recognised blockchain’s potential to revolutionise securities trading. By tokenizing stocks, companies can offer fractional ownership, enable round-the-clock trading, and reduce settlement times from the traditional T+2 (trade date plus two days) to near-instantaneous transactions.
How Do Tokenized Stocks Work?
Tokenized stocks are blockchain based digital assets where investors are given digital tokens that represent exposure to traditional stocks. The process involves industry participants working together to ensure regulatory compliance and maintaining the link between digital tokens and real shares.
First, a licensed financial institution or custodian purchases and holds the actual shares of a company. These shares are then “locked” in a secure account, serving as collateral for the tokens. For every share held, an equivalent number of tokens is created on a blockchain platform, typically using smart contracts to automate the process and ensure transparency.
When you buy a tokenized stock, you’re purchasing these blockchain-based tokens through a regulated platform. The smart contract ensures that each token maintains a 1:1 relationship with the underlying share, meaning if Apple stock trades at $190, the tokenized Apple stock should also trade at approximately $190.
The tokens can be traded 24/7 on compatible platforms, transferred between wallets, and even used as collateral in DeFi protocols, depending on the platform’s capabilities.
Tip: Verify that tokenized stocks are backed by a reputable custodian and that the platform you’re using is properly regulated.
What Companies Have Tokenized Stocks?
The tokenized stock market has expanded significantly, with major companies and leading stock indices spearheading the charge in adoption.
Tokenized Stocks
NVIDIA (NVDA), Tesla (TSLA), and Apple (AAPL) are among the most popular tokenized stocks, reflecting their strong presence in traditional markets. These companies’ shares attract significant trading volume in both conventional and tokenized formats.
Microsoft (MSFT), Amazon (AMZN), and Google parent Alphabet (GOOG) also feature prominently in tokenized offerings, providing investors with exposure to the world’s largest tech firms through blockchain technology.
Tokenized Stock Indices
Beyond individual stocks, major indices have also been tokenized which offers ways to invest in instruments with built-in diversification.
The S&P 500 (SPX500) and Nasdaq (NSDQ100) indices are available to trade as tokenized assets, allowing traders to gain broad market exposure through a single token. This development has potentially made index investing more accessible to global investors who might otherwise face barriers in traditional markets.
The list of tokenized stocks continues to grow, with platforms regularly adding new tokenized stocks based on demand. Financial institutions like JPMorgan and Bank of America, consumer brands like Coca-Cola and Nike, and entertainment companies like Disney have all seen their shares tokenized.
Advantages and Risks of Tokenized Stocks
Understanding both the benefits and potential drawbacks of tokenized stocks is crucial for making better-informed investment decisions. The new functionality features will suit some, but not all investors.
- Trade outside of traditional market hours – potentially on a 24/7 basis
- Tokenization can divide equity into smaller, more affordable units, enabling fractional ownership, which opens up stock markets to a new type of client
- Global access and transparent cross-border transactions using blockchain technology
- Lower transaction costs
- A decentralized, peer-to-peer exchange system allows for faster, almost immediate, settlement times
- Regulatory uncertainty and lack of clarity how different jurisdictions will react
- Lower
liquidity resulting in wider bid-offer spreads - Potential hacking of smart contracts and counterparty risk of custodians
- Divergence between tokenized and traditional stock prices when core markets are closed
- No actual ownership means a lack of voting rights
What Is Tokenized Equity?
Tokenized equity represents a broader category that encompasses not just publicly traded stocks, but also private company shares and other equity-like instruments. In theory, any appropriately structured company can create an equity token as long as it complies with the rules and regulations.
The way that tokenization of equity makes it easier to transfer ownership to a wider market could be particularly revolutionary for traditionally illiquid assets.
- Start up companies – Privately owned companies typically undergo lengthy and expensive legal processes called IPOs to make their stock available to the general public. Tokenization of their equity could allow them to be traded off-exchange and in small size.
- Illiquid assets – Asset classes such as real estate investment trusts (REITs) allow investors to own part of a property asset. Tokenization would also allow multiple investors to own fractions of commercial or residential properties, but democratize the process by allowing retail investors to take part in deals previously reserved for institutional investors or high-net-worth individuals.
How To Invest in Tokenized Stocks With eToro
eToro has positioned itself at the forefront of the tokenized trading revolution, launching innovative features that blend traditional and digital asset trading.
The platform’s journey towards a tokenized future includes the introduction of 24/5 trading for futures and tokenized stocks, breaking the constraints of traditional market hours. On eToro’s platform, investors will be able to access tokenized versions of popular stocks alongside traditional trading options.
Tip: The eToro platform provides real-time pricing, market analysis tools, and educational resources to help you make better-informed decisions.
What Is the Future for Tokenized Stocks?
The trajectory of tokenized stocks points towards mainstream adoption and integration with traditional financial systems.
Industry experts predict that tokenization will become a standard feature of the equity markets within the next decade. Major financial institutions are investing heavily in blockchain infrastructure, with banks like JPMorgan and Goldman Sachs developing their own tokenization platforms.
“Tokenization of assets is the next generation for markets, and it’s going to happen relatively quickly.”
Larry Fink, CEO of BlackRock
Regulatory frameworks are evolving to accommodate these digital assets, with jurisdictions like Switzerland, Singapore, and the UK leading in creating clear guidelines for tokenized securities.
The future likely holds increased interoperability between different blockchain networks, allowing tokenized stocks to move seamlessly across platforms. We may see the emergence of decentralised stock exchanges operating entirely on blockchain, offering peer-to-peer trading without traditional intermediaries. As CBDCs become a reality, the integration of tokenized stocks with digital currencies could create entirely new financial ecosystems.
Final thoughts
Tokenized stocks bridge the gap between traditional finance and the crypto ecosystem and represent a significant evolution in how we approach equity ownership and trading.
By combining the stability and familiarity of traditional stocks with the innovation and accessibility of blockchain technology, they offer unique advantages for modern investors.
However, as with any emerging technology, it is essential to understand both the opportunities and risks involved. The key is to approach tokenized stocks with the same diligence and risk management strategies you would apply to any investment, while remaining open to the transformative potential they represent.
Visit the eToro Academy to learn more about new ways of investing.
FAQs
No, while both tokenized stocks and fractional shares allow you to own portions of expensive stocks, they operate differently. Fractional shares are portions of traditional stocks held by your broker, while tokenized stocks are blockchain-based tokens representing ownership of actual shares held by a custodian. Tokenized stocks can be traded 24/7 and transferred between compatible platforms, whereas fractional shares remain within your brokerage account.
Yes, tokenized stocks are built entirely on blockchain technology. They use smart contracts to create digital tokens that represent ownership of real company shares. The blockchain provides a transparent, immutable record of ownership and enables features like 24/7 trading and near-instant settlement that aren’t possible with traditional stock systems.
Tokenized stocks carry both traditional investment risks and additional technology-related risks. While reputable platforms use secure blockchain technology and regulated custodians, risks include smart contract vulnerabilities, regulatory uncertainty, and potential liquidity issues, such as slippage. Always use regulated platforms and never invest more than you can afford to lose.
Access to tokenized stocks depends on your jurisdiction and the platform’s regulatory status. Many platforms require users to pass KYC (Know Your Customer) verification and may restrict access based on local regulations. Some countries have clearer frameworks for tokenized securities than others, so availability varies globally.
Not necessarily. While both use blockchain technology, they often operate on different networks. Cryptocurrencies like Bitcoin use their own blockchains, while tokenized stocks typically use platforms like Ethereum, Polygon, or purpose-built securities blockchains. Some platforms are developing interoperability solutions to allow assets to move between different blockchains.
This information is for educational purposes only and should not be taken as investment advice, personal recommendation, or an offer of, or solicitation to, buy or sell any financial instruments.
This material has been prepared without regard to any particular investment objectives or financial situation and has not been prepared in accordance with the legal and regulatory requirements to promote independent research. Not all of the financial instruments and services referred to are offered by eToro and any references to past performance of a financial instrument, index, or a packaged investment product are not, and should not be taken as, a reliable indicator of future results.
eToro makes no representation and assumes no liability as to the accuracy or completeness of the content of this guide. Make sure you understand the risks involved in trading before committing any capital. Never risk more than you are prepared to lose.