Stock Token: A New Paradigm of Traditional Finance Empowered by Blockchain

In recent years, stock tokens have emerged as an innovative financial product in the market. Utilizing Blockchain technology, they provide users with a brand new way to trade stocks, creating a compliant and open trading model. This not only broadens the range of choices for investors, especially opening the door for ordinary investors to access private equity, but also requires continuous attention to their operational mechanisms, potential risks, and regulatory requirements.
The New Frontier of Financial Innovation: Stock Tokens
Recently, some mainstream financial institutions and cryptocurrency companies have launched stock token services, and this innovative product has quickly attracted widespread attention in the market. Next, we will delve into the essence of stock tokens and their potential impact on the financial market.
The innovative model of stock tokens
A US-listed fintech company recently launched a stock token service in the EU market, bringing a new stock trading experience to European users. The service allows users to buy and sell derivatives that track stock prices priced in USD, and the company will automatically handle Euro conversion matters, but a 0.1% currency exchange fee will be charged.
Its core mechanism includes:
• Custody and Mapping: Stock tokens are derivatives that track prices, with the underlying assets custodied by licensed institutions in the United States. The company is responsible for issuing these contracts and recording them on the Blockchain. Due to their derivative nature, the corresponding securities can only be custodied in the company's accounts, and users cannot redeem them directly.
• Regulatory Compliance: Stock tokens are offered in the form of derivative contracts under the framework of the Markets in Financial Instruments Directive II (MiFID II). The company holds an MFT license and complies with the EU's requirements for providing derivative trading services, which are currently only available in the EU region.
• Trading hours and corporate actions: Stock tokens can be traded five days a week, from Monday 02:00 to Saturday 02:00 Central European Time/Summer Time. For corporate actions such as dividends and stock splits, the company will act on behalf of clients, including position adjustments, cash distributions, and dividend processing.
• Blockchain technology application: The issuance of stock tokens utilizes blockchain technology, initially based on a certain Layer2 blockchain, with plans to migrate to the company's self-built Layer2 blockchain in the future.
• Expansion of the private equity market: The company also leveraged blockchain technology for the first time to facilitate the acquisition of private equity, launching tokenized shares of two well-known tech companies to European users. This initiative provides ordinary investors the opportunity to access private company equity that is typically only available to insiders and high-net-worth investors.
Another more open model
A stock token launched by a cryptocurrency trading platform has adopted a more open design:
• Custody and mapping mechanism: Stock tokens are purchased and held by professional institutions responsible for real stocks or ETF assets, stored in compliant third-party custody institutions. Each token is pegged 1:1 to the underlying assets, and the custody process is strictly regulated. Tokens are based on high-performance blockchain, representing partial ownership of the underlying stocks or ETFs.
• Regulatory Compliance: The company collaborates with global regulatory bodies to ensure that the tokens comply with local regulations. Currently, it is only open to non-US customers and does not support users from markets such as the United States, Canada, the United Kingdom, the European Union, and Australia.
• Trading hours and company behavior handling: Supports 24/5 trading, breaking the time limits of the traditional US stock market. Token holders do not enjoy traditional shareholder rights, but dividends are indirectly distributed through a token price adjustment mechanism.
• Blockchain support: Currently based on high-performance public chains, with plans to expand to other high-performance blockchains in the future. The first batch includes 60 US stocks and ETFs, which can be traded on multiple trading platforms and decentralized finance protocols.
Comparison of Two Models
The first model has advantages in compliance and mainstream audience coverage, and provides unlisted stocks; the second model covers a wider area, supports native on-chain trading and decentralized finance protocols, and is closer to the cryptocurrency ecosystem.
Future Opportunities
For startup teams, the opportunities to participate in the stock token market may include:
• Target specific groups or regions that are difficult for traditional brokers to reach but can be covered by cryptocurrencies.
• Conduct financial product innovation, such as developing new derivative assets and trading strategies based on stock tokens, like high-leverage contracts, leveraged ETFs, etc., to create differentiated competitive advantages.
Stock tokens, as a form of financial innovation, are gradually changing the landscape of the traditional stock market, providing investors with more diversified options. However, investors need to fully understand the operational mechanisms, risks, and relevant regulatory requirements when participating in such new financial products.