Tokenised securities are flooding crypto news. They draw the attention of crypto enthusiasts everywhere, offering to build a bridge between crypto and traditional investments. However, does everyone here know how they really work? For those who don’t – keep reading.
Tokenised securities: what do we know?
Tokenised securities are tokens which correspond to the price (value) of a certain asset (e.g. a GOOGL share, gold, oil, etc.).
A tokenised asset “mirrors” the price movement of an underlying, real asset. When the real asset’s price rises, so does the tokenised security. When the real asset’s price falls, the tokenised security follows suit.
As such, we can assume that trading tokenised securities will bring you the same economic benefits as trading traditional assets.
Tokenised securities: why do we need them?
Today there is a global disconnect. The crypto market is growing, but the opportunities for crypto investors are somewhat limited.
Traditional assets, such as stocks, indices and commodities, have long remained closed to crypto holders. Until now, crypto investors had only one way round it — to convert their holdings into fiat – and that was slow and costly.
Tokenised securities make the difference. They enable seamless trading and interchange between crypto and fiat, equities and indices.
For example, an AAPL.CX token mirrors the performance of an Apple share on the Nasdaq. Users of a tokenised securities exchange like Currency.com can use their cryptocurrency holdings to buy an AAPL.CX token and trade it like they would trade an Apple share itself. Moreover, the trades are executed with the power, openness and speed of blockchain.
Tokenised securities: a new asset class?
There is also one conceptual question: do tokenised securities represent a new asset class? Or are they a new reconfiguration of an existing one?
It is important to understand whether they require a new framework for investing, or if they can be smoothly integrated into existing platforms. Do investors need new metrics, a new knowledge base to get to grips with the new crypto assets?
So many questions that hopefully will soon get their answers.
Tokenised securities: gaining momentum
Tokenised securities will revolutionise the world of traditional investments. It’s another outstanding opportunity to build new platforms and open new businesses.
According to FINMA (the Swiss regulatory body,) tokens may have three functions:
- Payment tokens, synonymous with cryptocurrencies, which can be used as a means of payment.
- Utility tokens, which are aimed to provide digital access to different services or applications; and
- Asset tokens (tokenised securities) that lie in the intersection of digital assets (tokens) with traditional financial instruments.
Why are tokenised securities so important?
If Bitcoin and other cryptocurrencies are considered as 'programmable money', tokenised securities can be called 'programmable ownership'. It means that any financial asset can be tokenised.
Tokenised securities can bring a number of improvements to traditional financial products. Potentially, they can remove the middleman from investment transactions. It will cause lower fees, free market exposure, faster trade execution and a larger potential investor base. When legally compliant, tokenised securities can prevent any institutional manipulations.
For now, the future of tokenised securities seems bright. Let's see how it goes.