Cryptocurrency exchanges begin offering tokenized securities (opens in new tab)

One thing to note for people who don't have a securities background is that exchanges have offered "depositary receipts" which is essentially the same thing for some time - the innovation here is making the depositary receipt into a crypto token. Depositary receipts are used typically to provide a secondary listing for a stock outside the country of its primary listing. So for example on Nasdaq I can trade a "Vodaphone depositary receipt", which will be denominated in USD but relate to 1 share of Vodaphone, which is listed in GBp in the UK. Somewhere in the pipeline a depositary institution has the actual shares and keeps track of who is the beneficial owner of each share for which a receipt has been issued.

This is an easy way for large companies to generate more liquidity (from foreign investors) and often has tax or other advantages for investors in that they don't need to report an FX pnl- they can just hold the stock in their main currency even though its primary listing is actually in a different currency.

These are usually called ADRs (American Depositary Receipts) and EDRs (European depositary receipts) based on whether the instrument is listed in the US or Europe. So the Vodaphone example above of a UK public company trading a depositary receipt on Nasdaq would be an ADR.

https://www.investopedia.com/terms/d/depositaryreceipt.asp

Approximately everybody in the US is able to get a brokerage account for trading public shares (with actual SIPC insurance, very limited liability for fraud etc). At the same time, the publicly investable stock market constitutes less and less to the total universe of US companies.

Unless tokenized securities will somehow make private investments accessible to non-accredited investors, this initiative seems to be entirely missing the elephant in the room, at least in the US.

"Advocates say tokenization is the next leap forward in crypto and can help break down walls that have advantaged the wealthy and make trading cheaper, more transparent and more accessible for everyday investors."

They LOVE playing this game. "We are doing this so you can now be the whale you always dreamed you would be!" But mean while they cut you to shreds with fees.

‘Advocates say tokenization is the next leap forward in crypto and can help break down walls that have advantaged the wealthy and make trading cheaper, more transparent and more accessible for everyday investors. But critics say tokenization threatens to undermine a century’s worth of securities law and investor protections that have made the U.S. financial system the envy of the world’. The problem with securities laws is that they are complex, and even defining what is a security is a hotly debated question, esp in crypto. I believe back in 2021, Binance had to pull back their offerings tokenized securities bc of german regulators, so its a very opaque environment.

Yeah.. as long as a judge can say that a security belongs to party X and not to the owner of tokens... tokenized securities are useless, they could just be a database record.

So NFTs for stocks?

I assume customers will by buying into this stuff with stablecoins, which have the amusing property of being nonvolatile until the day their value plunges to zero over the course of a few minutes.

Someone explain to me like I’m 5 how tokenization makes it possible to trade private companies. Wouldn’t that mean that the owners of those private companies are somehow issuing tokens related to their ownership?

Or is this yet another magical crypto thing where we collectively agree/imagine that tokens are somehow pegged to private companies, without any direct ownership to said companies?

Always amazed what scams and traps crypto community comes up with next.

When this whole thing crashes to the ground it will the digital equivalent of tulip bulbs of Netherlands.