Tokenized equities: Transforming liquidity and accessibility

Tokenized equities, or xStocks, are digital representations of traditional company shares that are recorded on a blockchain. They are backed 1:1 by actual equities, which are held in custody by a regulated third party.

Unlike traditional stocks traded on centralized exchanges, tokenized equities are issued and managed using blockchain infrastructure. This allows for transparent, verifiable ownership records and enables more flexible trading mechanisms, including the ability to trade even when the stock market is closed.

Because equal amounts of the underlying shares are held in regulated custody, these tokens track the prices of their traditional counterparts. This model is similar to how cash-collateralized stablecoins maintain the same value as the government issued currencies they represent.

Tokenization also allows for fractional ownership, which makes it easier for investors to gain exposure to higher-value equities with smaller amounts of capital. This ability to collectively trade smaller pieces of more expensive assets has the potential to democratize investing and opens global markets to a broader audience, all while maintaining the integrity of conventional equity ownership.

Would you rather watch than read? Check out the video below for all the details you need to know about tokenized equities.

Tokenized equities are opening a new standard for accessibility and efficiency when gaining exposure in the world’s largest companies. By leveraging the efficiency of blockchain technology, investors have a powerful new way to participate in equity markets with fewer barriers and lower costs than traditional channels. 

Additionally, since these shares are represented as digital tokens, they can be transferred, custodied and utilized within decentralized finance (DeFi) similar to other crypto tokens. This allows investors to not just gain exposure to some of the world’s largest assets, but leverage these holdings across decentralized financial protocols.

This opens up opportunities that were previously out of reach for many, particularly for those in countries with more limited access to global financial markets.

Tokenized equities offer a variety of practical benefits over the underlying assets they represent. Why it may be easy to question why you may choose to invest in a blockchain based representation of an asset instead of the actual stock or ETF itself, tokenization offers several efficiencies and possibilities that cannot be matched in the traditional brokerage market today.

1. Increased access: Through fractional ownership, tokenized equities enable both retail and institution investors to gain financial exposure to high-value real-world assets that may otherwise be inaccessible.
2. Improved liquidity: Traditionally illiquid assets, such as private company shares, real estate or physical collectibles, can become easier to buy and sell in financial markets once tokenized.
3. Global reach: With the borderless nature of blockchain infrastructure, investors from around the world can trade tokenized shares without the need for intermediaries.
4. Cost efficiency: By eliminating many intermediaries, tokenized equities have the potential to reduce transaction costs and streamline compliance processes.
5. Transparency & security: Every transaction is recorded immutably on the blockchain network, ensuring transparency and reducing the risk of fraud.

The process of tokenizing equities involves several steps:

1. Asset selection: A company or platform chooses the stock, ETF or assets they want to tokenize. This could be anything from a publicly listed stock to shares in real estate ventures.
2. Token creation: The newly-minted blockchain-based digital tokens digitally represent these real-world assets, with each token corresponding to a specific amount of the underlying asset
3. Smart contracts: These self-executing contracts govern the terms of the token, including voting rights, dividend distributions and ownership rules.
4. Compliance & KYC: Before issuing tokens, platforms often implement Know Your Customer (KYC) and Anti-Money Laundering (AML) protocols to meet regulatory standards.
5. Secondary market trading: Once issued, tokens can be traded on digital asset exchanges that support tokenized securities, allowing for greater liquidity and accessibility.

Tokenized equities can be created by:

• Fintech platforms: These are the primary drivers behind tokenization, building the infrastructure for secure, compliant digital asset issuance.
• Investment banks: Some traditional institutions are experimenting with issuing tokenized versions of existing equities.
• Private companies: Especially startups and SMEs looking to raise capital in a more efficient and globalized way.

These entities work with regulators to ensure that the tokenization process adheres to existing securities laws and offers investor protections.

Once issued, tokenized equities can be traded on specialized digital asset exchanges. These platforms offer features similar to traditional stock exchanges but with the added benefits of blockchain technology; namely faster settlement, reduced fees and off-hours trading.

Some exchanges are fully decentralized, while others are regulated and centralized to comply with financial authorities. Either way, tokenized equities introduce a more dynamic and globally accessible method for engaging with the stock market.

While tokenized equities and traditional stocks represent the same type of asset, there are key differences:

Trading hours

• Traditional stocks: Limited to market hours
• Tokenized equities: Up to 24/7 on blockchain platforms

Settlement time

• Traditional stocks: Multiple business days
• Tokenized equities: Near-instant

Accessibility

• Traditional stocks: Limited by geography and intermediaries
• Tokenized equities: Global, peer-to-peer access

Ownership

• Traditional stocks: Fractional ownership possible
• Tokenized equities: Fractional ownership possible

Transparency

• Traditional stocks: Relies on third parties and private records
• Tokenized equities: Immutable records on public blockchain

These differences illustrate how tokenized equities leverage the nature of blockchain technology to remove friction and increase inclusivity.

A broad range of equity-based real-world assets can be tokenized, including:

• Private equity: Startups and pre-IPO companies
• Public equities: Traditional stocks represented in tokenized form
• Real estate: Equity ownership in commercial and residential properties

The flexibility of blockchain technology means virtually any form of asset ownership can be tokenized and traded, opening up new possibilities for portfolio diversification.

The growth of tokenized equities is more than just a trend — it's a structural shift in how we perceive, access and manage equity markets. As regulations catch up and blockchain networks mature, we can expect:

• Greater integration with traditional financial systems.
• Increased adoption by institutional investors.
• Enhanced compliance and investor protection mechanisms.
• Broader participation from retail investors worldwide.

With the ability to tokenize illiquid assets like real estate, private equity and other specialized financial assets, this model can democratize access to wealth-building opportunities on a global scale.

Tokenized equities represent a fusion of traditional finance and cutting-edge blockchain technology.

By turning equity shares into digital tokens, investors gain access to fractional ownership, greater liquidity and enhanced transparency. Whether you're an institutional investor or a curious retail participant, understanding this emerging asset class is crucial as we move toward a more decentralized, inclusive financial future.

Stay ahead of the curve — explore how tokenized equities can play a pivotal role in your investment strategy.