What Are Tokenized Stocks? Key Differences from Traditional Stocks

Imagine if buying shares in a multinational corporation could be as simple and fast as sending a picture online, unrestricted by time and borders. This is the goal that 'tokenized stocks' are striving to achieve. Simply put, tokenized stocks are real-world company shares converted into digital tokens through blockchain technology.

You might wonder, how is this different from the traditional stocks we are familiar with? The core differences lie in the following points:

• Form of Ownership: Ownership of traditional stocks is recorded in centralized databases of brokerages and central clearing houses. In contrast, ownership of tokenized stocks is recorded on a public, transparent, and nearly immutable shared 'digital ledger'—the blockchain.

• Trading Hours: Traditional stock markets have fixed opening and closing times. Tokenized stocks, however, rely on the blockchain network that operates around the clock, theoretically enabling 24/7 trading.

• Trading Units: When buying some high-priced stocks, the traditional method requires purchasing at least one full share, which can be a high barrier to entry. Tokenization technology can easily split a single share into smaller fractions, allowing investors to buy '0.1 shares' or even less, significantly lowering the participation threshold.

Why Pay Attention to Tokenized Stocks? Understanding Their Investment Advantages and Value

Tokenized stocks are attracting increasing attention because they offer tangible benefits to global investors. It's not just a technological innovation but also a catalyst for making financial markets more open and efficient.

Its core advantages are mainly reflected in:

• Lowering Investment Barriers: By supporting 'fractional' purchases, even users with limited budgets can participate in the growth of top global companies, making investment more inclusive.

• Enhancing Global Market Accessibility: No matter where you are, as long as you have an internet connection, you can overcome geographical barriers and access global capital markets that might have been previously out of reach.

• Improving Trading Efficiency and Reducing Costs: The automated nature of blockchain eliminates many intermediary steps and manual processes found in traditional trading, leading to faster transaction settlements and potentially lower fees.

• Potential for Integration with DeFi: This is the most exciting aspect. Tokenized stocks can be seamlessly integrated into the world of Decentralized Finance (DeFi). Imagine using your stock tokens as collateral to borrow funds in a DeFi protocol or putting them into a liquidity pool to earn extra returns—something unimaginable in the traditional financial world.

Pre-Trading Preparations: How to Choose a Compliant Platform and Set Up a Digital Wallet

Before you start trading, thorough preparation is crucial. This not only ensures the security of your assets but also gives you a clearer understanding of what you are getting into.

First and foremost, the most important step is to choose a regulated and reputable platform. You need to do careful research to distinguish the fundamental differences between the products offered by various platforms. For example, some platforms offer tokens backed by real, equivalent shares, while others might offer derivatives that merely simulate stock price fluctuations. The two have vast differences in terms of ownership and legal protection.

After selecting a platform, you typically need to complete the following setup:

1. Open a Trading Account: This usually requires you to provide personal information to complete the 'Know Your Customer' (KYC) verification, which is a standard procedure for compliant platforms to ensure fund security.

2. Set Up a Digital Wallet: A digital wallet is where you store and manage your tokenized assets. Depending on the platform's requirements, you may need to use a built-in custodial wallet or connect your own non-custodial wallet. Be sure to securely store your wallet's private key or seed phrase, as it is the sole proof of your asset ownership.

Step-by-Step Guide: Securely Buying Your First Tokenized Stock

Once you have completed all the preparations and have a basic understanding of the concepts, the buying process itself is quite straightforward. Although the specific interface may vary between platforms, the core steps are largely the same.

Here is a general operational flow:

1. Complete Identity Verification (KYC): On your chosen compliant platform, follow the instructions to upload the necessary identification documents to complete the account's real-name verification.

2. Deposit Funds: Tokenized stocks are usually priced and traded using stablecoins (like USDT). You will need to deposit stablecoins or other supported crypto assets into your trading account.

3. Search for the Target Stock Token: In the platform's trading market, search for the stock token you are interested in using its ticker symbol (e.g., 'TSLA' for Tesla or 'AAPL' for Apple; the tokenized version might have a suffix, like 'TSLAX').

4. Execute the Purchase Order: Once you find your target, enter the quantity or amount you wish to buy, choose a market or limit order, confirm that the transaction details are correct, and click the 'Buy' button to complete the operation. After the transaction is complete, your purchased tokenized stock will appear in your account assets.

Potential Risks and Regulatory Awareness: Key Points to Understand Before Investing

Any emerging financial innovation comes with potential risks and uncertainties, and tokenized stocks are no exception. Before investing real money, a comprehensive understanding of these key points is a mandatory lesson for any mature investor.

• Limited Rights: You need to be aware that holding a tokenized stock is not usually equivalent to having traditional shareholder rights. In many cases, you may not be able to participate in company voting or receive dividends directly like a regular shareholder. These tokens are often more like value certificates that track the stock's price.

• Liquidity Risk: As an emerging market, the trading volume and depth of some tokenized stocks may be limited. This means that at times, you might find it difficult to quickly buy or sell large quantities of tokens at your desired price.

• Regulatory Uncertainty: Regulatory policies for tokenized stocks are still being explored and developed by countries worldwide. Ambiguities or changes in the legal framework could introduce compliance risks to the market.

• Technical and Security Risks: Since these assets rely on blockchain and smart contracts, they are also exposed to technical security risks such as smart contract vulnerabilities and cyber-attacks.

Conclusion and Outlook: Market Trends and the Future of Tokenized Stocks

Tokenized stocks, as a key bridge connecting traditional finance (TradFi) and the Web3 digital world, are showing astonishing growth potential. According to industry research data, the tokenized stock market reached a market capitalization of $370 million in July 2024, a 220% increase from the previous month. Some forecasts suggest that if even just 1% of the global stock market were to be tokenized, its market size could exceed $1.3 trillion.

This is not just about numerical growth; it heralds the arrival of a new paradigm for a more open and efficient global capital market. As regulatory frameworks gradually become clearer and technology continues to mature, tokenized stocks are poised to enable more people worldwide to conveniently and cost-effectively share in the growth dividends of the global economy. Of course, as participants, while embracing innovation, we must maintain a clear understanding and a cautious attitude, continue to learn, and prioritize platforms that place compliance and security first.

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