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.
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.