Which is the better choice — buying regular shares of Tesla Inc (NASDAQ:TSLA) and other companies or buying the securities in a token format?
About Tokenized Shares:Shares of several companies such as the Elon Musk-led automaker Tesla, GameStop Corp (NYSE:GME), and Amazon.com, Inc (NASDAQ:AMZN) are now available as “tokenized stocks.” In short, these refer to the creation and issuance of digital tokens that represent equity shares in a company or entity.
Where To Buy These Shares:Tokenized stocks are available through a number of exchanges like Bittrex and FTX. On Monday, Binance also introduced these types of stocks putting up Tesla as the first token listing.
Binance is pricing the stocks and carrying out settlements in Binance USD (BUSD) stablecoin. Local regulations may apply, restricting the purchase of share tokens. Binance, for example, does not offer such tokens in Turkey, China, and some other restricted jurisdictions.
Why Tokenized Shares:A purported advantage of tokenized shares is greater flexibility. Binance, for example, will allow investors to trade a minimum of one-hundredth of a stock token. This means, if an investor purchased a regular share of Tesla, they would have to pay nearly $700, they could invest in the automaker through a share token for as little as $7. Tesla shares closed almost 3.7% higher at $701.98 on Monday.
Some exchanges like Bittrex allow for 24-hour trading, seven days a week. This is not possible in the case of regular stocks, which must be traded during particular hours when the markets operate. This gives a supposed liquidity benefit as well since these token stocks can be sold at any time.
Corporate Actions And Token Stocks:As per exchanges like Bittrex and Binance, holders of token stocks are entitled to dividends and other benefits arising out of ownership of the underlying securities.
“Holders of stock tokens qualify for capital returns on the underlying equity, including potential dividends and stock splits, as they would from holding traditional shares,” said Binance in a statement.
Should You Buy Tokenized Shares:Bittrex says on its webpage that it is not anticipated “that the shares will exercise their voting rights” but the company powering its token shares may do so at its discretion. The exchange said dividends on such tokens would be paid out subject to tax withholding.
“It will be up to each user to understand the tax consequences of any dividends they receive,” said Bittrex on its website.
Another issue is the applicable fee, while some exchanges may not charge a commission, the fee or premium can creep in when users purchase cryptocurrencies in the first place. However, existing holders of cryptocurrencies now have a new gateway to stocks.
Regulatory clarity on cryptocurrencies is still an issue, alongside concerns such as previous theft and hacking of cryptocurrency assets. The former Chairman of SEC, Jay Clayton, said in October that all stocks could become tokenized one day,according to the Block. For now, some stocks are definitely available for trading as token shares including that of Tesla.
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