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Binance, a cryptocurrency exchange, recently revealed three more tokenized stocks would be available for trading in late April. But securities regulators are starting to speak up.

On April 25, Binance announced tokens for Microsoft Corp, Apple Inc., and MicroStrategy Inc. that follow the debut of tokens for Tesla Inc. and Coinbase Global Inc. earlier in the month.

To create the tokens, CM-Equity, an investment firm, buys real stock in the companies and holds them in a depository as collateral. Digital Assets AG, an asset tokenization platform, issues the stock tokens. The value of the tokens is pegged one-to-one with the stocks they represent. Users pay for the tokens with Binance USD, a stablecoin linked to the dollar.

In theory, stock tokens could allow anyone access to equities around the world, with ample liquidity and low barriers to entry. Users can make fractional purchases, making units more affordable. Traders also have access to normal stock perks such as dividends and stock splits.

In practice though, users in the U.S., China, Turkey, and other countries aren’t allowed to trade in the tokens. Germany’s financial regulator BaFin warned on April 26 that Binance is at risk for fines without publishing an investor prospectus for each.

LEGAL TOKENS

In many jurisdictions, including the U.S., only securities exchanges, which are highly regulated, are permitted to list securities. Since Binance is not a securities exchange, it may not be able to accommodate customers from jurisdictions like the U.S. who want to purchase securities on Binance. But the moves by Binance and others may put pressure on traditional stock exchanges to embrace the idea of offering securities in tokenized form. Stay tuned.

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Anthony Tu-Sekine | Partner

As the head of Seward & Kissel’s Blockchain and Cryptocurrency Group and a frequent commentator on all things crypto, Anthony advises clients on a wide range of evolving topics, including how to structure and issue security and utility tokens, registered and unregistered offerings of security tokenstoken custody, transfer and liquidity issues, non-security opinions, and investments in crypto assets by funds and other investors. A recognized leader on physical precious metals funds, Anthony represented APMEX Inc. and alternative asset manager Sprott Inc. in connection with the launch of OneGold.com, which allows investors to own gold documented on blockchain.

You can work with regulators or you can really try to piss them off… If you really want to do the latter, then you should expect that they will bring every tool they have against you.

Anthony’s thoughts on BitMEX indictment, as published in Law360 article “BitMEX Case Seen as Blessing in Disguise for Crypto Sector”