Investing has changed significantly not only since the Middle Ages, but especially in recent years. What was once limited to physical assets now goes far beyond those boundaries. Nowadays, you can not only invest in digital but also tokenized equity, which you truly own.
Why tokenization of assets is the logical next step in this evolution of investing, we are going to cover in this article.
- Stock trading has been around since the Middle Ages.
- With digitization, securities have been registered, bought and sold digitally in recent decades.
- In order for a company to sell its shares to interested parties, it has always needed a financial institution as an intermediary.
- This dependence on a third party puts companies as well as private investors at a disadvantage in several respects.
- For example, companies have to invest a lot of time and money for an IPO or Direct Listing or limit the interested group of investors to financially powerful VC-funds, which are not accessible to small investors.
- Thanks to the blockchain, the trading of securities is revolutionizing. Now the tokenization of assets is possible, which finally compensates for the disadvantages of previous securities trading.
The beginning of stock trading
The history of investing begins in the Middle Ages. At that time, large goods fairs and annual markets were held at strategically important transportation hubs—Venice or even Bruges developed into important international trading centers. Sugar, fabrics as well as spices were stored in these places and traded by merchants from all over the world. These deals were concluded, among other places, in inns; such was the case in the inn of the "van der Beurs" family, whose family name inspired the creation of the modern term "stock exchange".
In time, merchants realized that they did not need to physically transport the goods to the fair in order to sell them. Thus, commodity-less trade began on the sidelines of the actual fairs. In order for this simplified trade to be possible, there were binding sets of rules and deadlines. Financial instruments such as bills of exchange, promissory notes and bills of credit were introduced during this period.
Later, trading in securities, i.e. company shares, also began, resulting in the first stock exchange, the Amsterdam Stock Exchange, in 1602. With industrialization, the number of securities offered for sale increased exponentially. This led to the institutionalization of trading in Switzerland in the 1850s, along with the introduction of the Stock Exchange Act. Eventually, it gave rise to the SIX Swiss Exchange, where most trading takes place today.
And just as merchants realized at the time that there was a smarter way to trade, namely commodity-less trading, with the advent of the blockchain it has been realized that there is a smarter way to trade digitally, namely with tokenized assets.
But more on that later…
The digital share
Over the past few decades, the technology boom has changed investing dramatically. This has also given rise to the digital share. It is registered in electronic form and issued and held by an existing stock exchange.
Today, it is common to buy and sell shares not through the bank, but through an online trading platform such as Yuh, Swissquote or Selma. These platforms are the intermediaries, just like the bank. Without them, it is not possible for a company to sell a share directly to interested investors.
However, this privilege has to be bought at a high price. At least, that's how it used to be—until the blockchain came along. More on this in a moment.
Not only private investors are restricted in trading shares due to their dependence on a bank or broker, but also companies. The disadvantages include:
- Availability of securities: In order to be able to sell company shares at all, companies must undergo an initial public offering (IPO) or a direct listing in traditional securities trading. This results in the company being listed on the stock exchange and selling securities to smaller investors. However, this not only takes a lot of time, but is also very expensive.
- Limited investors: A company that wants to avoid an IPO has the option of obtaining support through financing from private equity funds. However, these funds are only accessible to wealthy investors, as the minimum investment amounts are very high.
- Opening hours: Interested parties cannot sell their company shares at any time, but only when the financial institutions are open - at SIX this is the case for shares from 9:00 am to 5:30 pm.
Tokenized shares revolutionize investing
With the advent of the blockchain, securities trading has undergone yet another significant change since going digital—and it's benefiting companies and individual investors all together.
Tokenization explained in simple terms
As explained above, a company cannot sell shares directly to its interested parties because a company must always be able to track who owns the company shares. And retail investors need to be made aware of certain company information so they can make informed buying decisions.
But the blockchain now enables just that. With asset tokenization, you can store, transfer and manage original assets directly—without a third party.
Tokenization describes the process of transferring ownership of real assets to the blockchain. This makes true ownership of securities available without an intermediary and to any person, enabling seamless, liquid and transparent trading.
How Can I Tokenize My Shares?
At its core, this is quite simple. If you want to tokenize an asset, you choose a blockchain platform, such as Solana, Avalanche, or Ethereum to tokenize a portion of your shares. Next, you need to create a smart contract that holds the tokenized shares and issues them against cryptocurrencies. Following that, you issue the tokens, meaning you make them available for sale. If you are a company that wants to sell company shares without an expensive intermediary, as traditional financial institutions, underwriters and law firms usually are, then you can contact Aktionariat's team of experts.
Aktionariat can tokenize your company shares and make them available to the public in less than 30 days, brings extensive knowledge of the technological aspects and has already helped 32 companies in Switzerland to tokenize their company shares.
What are the advantages of tokenized assets?
The disadvantages of traditional investing listed above will no longer be a problem in the future thanks to tokenized shares, because:
- With tokenized shares securely stored on the blockchain, securities trading can now happen directly—without a long and expensive IPO. To be sure, there is still no method today to protect data 100 percent. But the blockchain's decentralization makes it much more secure than a centralized database in a traditional financial institution.
- Even without an IPO or direct listing, companies can make their shares available to a wider range of investors because there is no need for expensive minimum investment amounts, as is the case with private equity or VC-funds.
- The ethereum blockchain does not know opening hours, but is a programmable database that is distributed all over the world and can therefore be accessed at any time. Companies can get and send their shares all day, seven days a week, 365 days a year.
- Smart contracts can automate certain processes, such as paying dividends or registering new shareholders, saving companies time and resources.
Tokenization has already significantly changed the way we think about investing. By tokenizing company shares, you as an entrepreneur can unlock new opportunities for monetization and make your investments more secure by using decentralized platforms and run your own market. In addition, tokenization makes it easier for you to access a larger pool of investors with lower fees than any traditional financial institution would ever offer you.
If you want to learn how to take advantage of tokenization for your shares, it's best to book a free demo with Aktionariat today.