Tokenization of publicly traded stocks – might crypto have found a use case that is global in scope?
In the old days, trading of publicly listed shares would be done between the hours of 9:30 a.m. until 4:00 p.m. (and oh, remember paper-based orders?). Now it seems round-the-clock may be, at some point, the new norm for U.S. behemoths such as Apple, Tesla and Facebook. And you can even own pieces of individual shares.
News comes through Bloomberg that a digital exchange is slated to open next week that will let investors trade shares in the aforementioned companies even when U.S. markets are closed.
The company behind the digital exchange, DX.Exchange, has offices in Estonia and Israel, and per the newswire will offer digital tokens that are based on shares of 10 Nasdaq-listed companies. The math shakes out thus: Each token is equivalent to one share in a particular company and the holder has the right to receive dividends, even though, as Bloomberg noted, “the companies themselves are not involved.”
The roadmap is one where there is intent to expand to the New York Stock Exchange, and also in Tokyo and Hong Kong.
The mechanics? DX will offer digital stocks (i.e., the tokens) based on securities that are in turn bought and held by MPD MarketPlace Securities Ltd and with the tokens based on the Ethereum network, said Bloomberg. MPS MarketPlace holds a license from Cyprus’ financial regulator and will hold the stocks in a separate account.
Traders can also choose to buy fractions of shares, and tokens on offer will be tied to the demand on the DX exchange.
In an interview with Bloomberg via written exchange, DX CEO Daniel Skowronski said that “we saw a huge market opportunity in tokenizing existing securities. We believe that this is the beginning of the traditional market’s merge with blockchain technology. This is going to open a whole new world of trading securities old and new alike.”
Might the emergence of the exchange offer some liquidity to the markets? The idea is, after all, that they can be traded around the clock, and foreign investors would have access to trading of U.S. firms that might not otherwise be available.
Thus the last few days have seen headlines touting “the future of trading” – and it should be noted that the partnership between Nasdaq and DX.Exchange represents a bit of difference between other models of crypto trading into real assets and/or securities, where fiat was an intermediary.
The announcement underscores a bit of a shift from the ICO world, where security tokens and utility tokens were issued with different types of ownership of products or services, and where regulation still has yet to be fully defined. And as has been well-documented, ICOs have had a very uneven track record.
This time around, there are a number of regulatory eyes watching – and watching in unison. DX.Exchange is, after all, working with Nasdaq and is, through oversight of the Estonian Intelligence Unit, able to reach EU traders.
It remains to be seen what demand may be in the offing beyond the “gee whiz” factor of having digital stocks in a digital portfolio.
But if you build it, will they come? The exchange is debuting right into the teeth of a crypto bear market, which implies skittishness about the sector in general. And stocks? “Wild and woolly” barely begins to describe the last few months. Volatility across all corners may not augur well for a speedy digital stock uptake. Stocks on a blockchain may be novel, but timing is a factor here, too, and perhaps not everything blockchain spells blockbuster.