What is an equity token?
Equity token is a type of security token that stands for ownership rights. Tokenization is a way of holding your shares in a decentralized, digitized infrastructure. According to European Securities and Markets Authority (ESMA), equity tokens are considered securities (just like traditional shares) and should be treated like any other financial instruments. The biggest difference between conventional shares and this type of token is the way of recording the transactions, which proves the further digitalization of the world of finances. A traditional share has a physical book-form certificate, whereas equity token operates like a digital certificate, or a proof of transaction, but these two contain the same contractual information. It is a block of encrypted data that endows holders with actual rights to certain actions and decisive power over the company. Just like corporate shares, equity tokens can be grouped into classes.
What is tokenized equity?
It’s a framework in which tokens - shares - are enabling some kind of benefits or rights to its holders, for example they can vote, have dividends, or can execute their partial ownership in some other way. Owing to the convenience of the process, the issuance of a blockchain token representing a real asset that is tradeable becomes more common and popular worldwide.
What are the benefits of tokenized shares?
When tokenizing the ownership of a company, one opens themselves to more liquidation and wider spectrum of investments. Moreover, this process allows more transparency and is more accessible to people, as it is digital and the transaction fees are considerably smaller.
What is equity token offering?
By many, it is considered a “Initial Coin Offering 2.0”, which means that it is a method of raising funds for a start-up or a project.
What's the difference between equity token and security token?
The most basic difference is that utility tokens work as “coupons” - they do not grant their holders any asset or ownership stake, whereas equity tokens do - this allows for more stability and security.