Market Analysis Report (16 Jun 2021)
16 Jun 2021
Exchange Name Type KYC Required Dividend Signup 1. FTX Centralised Yes Yes Save 5% on FTX Trading fees 2. Binance Centralised Yes Yes Save 20% on Binance 3. Mirror Decentralised No No (Liquidity mining is available) Trade on Mirror 4. Synthetix Decentralised No No Trade on Synthetix 5. BitPanda Centralised Yes Yes Trade on Bitpanda
Before that, lets imagine a world where:
Well, all this is now a reality… Read on to learn more
But, before that…
As we are already aware, we can use blockchain technology predominantly to transfer ownership of an asset from one person to another without the need of an intermediary trusted authority. This rise of blockchain has led to creating several assets that can be traded through a Distributed Ledger Technology (DLT) (i.e., the most popular DLT, blockchain).
Tokenization of assets is one such concept that includes tokenization of securities (for example stocks and bonds), commodities (such as gold), and other non-financial assets (such as real estate). The term tokenization can be defined as a process of digitizing any asset (physical asset or even an existing digital asset) with the help of a Distributed Ledger Technology (DLT) (also known as Blockchain technology) and issuing a token as proof of ownership of that asset.
In case you are interested in reading more about tokenization and its possible impact on the economy. The Organisation for Economic Co-operation and Development (OECD) has published a detailed analysis of what tokenization of real-world assets provides in the shape of an opportunity. In the report, the OECD has tried to explain the impact of tokenization and analyzed hypothetical situations such as tokenized equity markets, debt markets, or real estate markets. You may refer to the report here.
Today we will be discussing the concept of tokenization of stocks, also known as tokenized stocks or stock tokens. We will also be looking at the best-tokenized stocks platform.
Suppose if you are a resident of Australia and want to buy a stock of Tesla, Inc., you would need to open a stock account with a brokerage firm with a license to operate in the USA.
However, suppose you have an account with Binance exchange (the world’s leading cryptocurrency exchange). In that case, you do not need to find a US-based brokerage firm and can simply buy a TSLA token (One TSLA token represents one equity share of Tesla). This process would save you from the hassles of opening an account with a brokerage firm and sometimes saves the brokerage fee substantially.
Thus, tokenized stocks can be defined as a token that is a synthetic version of an equity share (such as Tesla, Facebook, Netflix, Uber, etc.) in the traditional stock exchange. Tokenized stocks connect traditional stock markets (such as NYSE or NASDAQ) with the crypto markets (such as Binance exchange and FTX exchange).
Step 1 mentioned below is a normal process of any traditional stock exchange where a company lists its share through either direct listing or an IPO. The method of tokenization starts from Step 2 and finishes at Step 4 above.
Generally, an investment institution and a custodian are involved in the process of tokenization of equity stock. Investment institution purchases stocks and keeps it as a reserve with the custodian. Basis the shares kept in reserve, tokens are issued through a blockchain and listed on the crypto exchange, available for trade. Then, any investor can purchase these tokens from the crypto exchange and indirectly own a part of the actual equity stock kept with the custodian in reserve.
Note: In the case of decentralised tokenized stock platforms, the technique is different. I have discussed this in detail below.
Please note that the investor is an indirect customer of the concerned Investment Institution. Therefore, the investor may need to fulfill the KYC requirements of the crypto exchange and the investment institution.
Now, as we know the structure of tokenized stocks, let us understand what they offer in terms of benefits.
Tokenized stocks provide a user with many benefits, such as:
However, tokenized stocks have some limitations as well.
While tokenized stocks have many benefits, we cannot ignore their limitations. Some of them are as follows:
Now, the most critical question. Where can you buy tokenized stocks?
FTX Exchange is one of the fastest-growing crypto exchanges that has got market attention with its unique product offerings. One such offering pioneered by FTX Exchange is tokenized stocks. Read our detailed review of FTX Exchange here.
The investment firm associated with FTX Exchange is a Germany-based Investment Institution, CM Equity. CM equity keeps custody of equity stocks with a third-party brokerage firm. The investors also need to fulfill the KYC requirements of CM Equity before investing in tokenized stocks.
Features of tokenized stocks of FTX Exchange are as follows:
Currently, FTX Exchange has the broadest range of tokenized stocks available in the market. You can read more about tokenized stocks offered by FTX Exchange here. Check the updated list of tokenized stocks offered by FTX Exchange here.
FTT is the native token of the FTX Exchange (like BNB is the native token of Binance). For the whitepaper of FTT Token, click here.
The Market Cap of FTT is USD 6.4 Billion, with a total supply of 340 Million and a circulating supply of 127 Million. FTT is the backbone of the FTX ecosystem. Majorly you can use the token to pay the transaction fee for the platform and can be staked to earn additional income.
You can read about the benefits of FTT Token here.
You can buy FTX token on FTX exchange or Binance exchange.
Binance is the leading cryptocurrency exchange in the world that has recently started trading stock tokens. Read our full review on Binance Exchange here.
Binance calls these tokenized stocks “Stock Tokens”. The Investment Institution associated with Binance is also CM Equity, and the arrangement is similar to the structure CM Equity has with the FTX Exchange.
Features of Stock Tokens of Binance Exchange are as follows:
Read more about stock tokens issued by Binance here. You can see the updated list of stock tokens available on Binance here.
Watch this video to learn how to trade tokenized stocks on Binance:
Though the variety of stock tokens available is currently very low on Binance, I am sure that the exchange will add many more tokens to the list in the future.
BNB is the native token (ERC 20 token) of Binance Exchange. For the whitepaper of the BNB token, click here.
The Market Cap of BNB is USD 79.3 Billion, with a total supply of 170.5 Million and a circulating supply of 154 Million. BNB is majorly used to pay the fees charged by the exchange and can also be staked to earn additional income.
Here are the benefits of BNB Token:
BNB is available on many popular exchanges such as:
Bittrex is another well-known cryptocurrency exchange working in this sector since 2014. It is a US-based exchange and thus is in line with US regulations.
Bittrex issues the said tokenized stocks in association with DigitalAssets.AG, which is an asset tokenization platform based out of Switzerland. The tokens are backed up by actual equity shares that are kept in reserve by the custodian.
Features of tokenized stocks of Bittrex Global Exchange are as follows:
You can see the updated list of stock tokens available on Bittrex here.
Mirror protocol is a decentralized platform that offers completely synthetic tokens known as “mAssets”. mAssets track and mirror the value of a real-world asset (for example, an Apple stock), but the token is not backed up by any reserve of actual Apple company stocks.
Mirror Protocol has a Collateralized Debt Position (CDP) in place of a reserve of actual company stocks. Anyone who mints (known as minter) an mAsset will have to provide collateral. A minimum CDP ratio of 150% must be maintained at all times below which the collateral will be liquidated and proceeds will be paid to the mAsset holders.
For Example: Suppose Apple’s share price is USD 100 per share (round figure taken for simplicity). To mint the mAsset (mAAPL), the CDP ratio is 200% and the minimum CDP ratio is 150%. This means that anyone who wants to mint a new mAAPL token would have to deposit USD 200 at the time of minting.
Now suppose the price of Apple shares increases to USD 200 per share (up by 100%). The initial collateral provided i.e. USD 200 is less than the minimum CDP ratio i.e. 150% (150% of USD 200 = USD 300). Therefore, the minter would have to deposit a further USD 100 to maintain the position.
The platform was launched by Terraform Labs and runs on the Terra Network. Terra Network is a smart contracts based blockchain platform. Read everything about Mirror protocol here.
MIR is the native token (Terraswap CW20 Token) of the Mirror Protocol which also serves as a governance token for the platform. MIR token holders have voting rights for the polls (new governance proposals). However, currently voting right is given to only those token holders who have staked their tokens. Further, the MIR token is also used for the purpose of staking and to reward liquidity providers.
The total supply of MIR tokens is 370.5 million which will be distributed over a period of 4 years. Currently, the market cap of tokens is USD 522 million with a circulating supply of 56.8 million (15% of total supply).
Synthetix is an exchange for synthetic assets (tokenized assets) known as “Synths” based on the Ethereum blockchain. Currently, the exchange is partially decentralized with the plans of making it fully decentralized.
Synths track and mirror the value of a real-world asset (for example, an Netflix stock), but the token is not backed up by any reserve of actual Netflix company stocks. The structure of Synthetix is similar to Mirror Protocol with a difference that in place of Collateralized Debt Position (CDP) there is a concept of “Infinite Liquidity”. Basis this liquidity protocol any minter would need to provide SNX token (more on this in a while) as collateral before minting any Synth. Currently, the collateralization ratio is 750%, i.e., to mint SBTC worth USD 100, USD 750 worth of SNX token is required as collateral.
Synthetix offers two types of synths:
Long synths whose price will increase if the price of the underlying asset increases. These tokens are represented with an “S” as a prefix – for Example, SBTC, SETH, etc.
Short synths whose price will decrease if the price of the underlying asset increases. These tokens are represented with an “i” as a prefix – For Example, iBTC, iETH, etc. As a tokenized stock, currently only Tesla token is available.
Features of a Synth are as follows:
SNX is the native token of the Synthetix Exchange. SNX forms the primary collateral base on which the exchange issues synthetic assets. Staking of SNX entitles you to fees that are generated by Synth trading on the platform.
The total supply of SNX tokens is 215 million with a circulating supply of 114.8 million (54% of the total supply). The market cap is USD 1.8 Billion.
Btpanda is a cryptocurrency exchange that also offers tokenized stocks. Read our full review on Bitpanda Exchange here.
Tokenized stocks offered by Bitpanda Exchange are called “Bitpanda Stocks”. The exchange collaborates with an investment institution (Bitpanda Financial Services) which keeps actual equity stocks in custody and the basis that tokenized stocks are issued on the exchange. This is similar to FTX Exchange and Binance Exchange which are also centralised exchanges.
Features Bitpanda Stock are as follows:
Read more on Bitpanda Stocks here. Further, you can find the updated list of stocks available on Bitpanda Exchange here.
Finally, I think that the tokenization of real-world assets in the future has just begun with tokenized stocks. As an investor of tokenized assets, you must always ensure the credibility of the collateral/reserve assets basis on which these synthetic tokens have been issued.
Please note that I am not a financial advisor and nothing discussed above is financial advice. DYOR before investing.
I hope this article would help you decide from which tokenized stock platform you should use.
Let me know the stocks that you would like to buy in the tokenized form.
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