Tokenized Stocks for Trading and Capital Raising

Abstract

The paper examines the concept of tokenizing assets on public permissionless blockchains such as Ethereum, Algorand or Avalanche. It starts with an overview of the core principles and components of public blockchains, such as the ownership attribution and efficient transaction processing. The paper argues that tokenization could simplify and streamline back-office operations, enable new interactions between issuers, financial firms and investors, and allow novel service models in digital asset issuance and management. The paper then examines the functions and potential usage of tokens, comparing and contrasting traditional and digital assets. It also discusses the mechanisms for token issuance and potential issues that may arise from tokenizing existing assets. The challenges and advantages of digital assets for implementing traditional asset functions such as dividend payments, shareholder voting, and shareholder communications are also discussed. Finally, the paper covers the usage of tokenized assets and the potential effects of smart contract services on existing financial service providers. The paper suggests several best practices and requirements for token issuance, including a token registry, standards for backed or asset-linked tokens, and a failsafe reconciliation process if the blockchain fails.