The recent move by Binance to list two “stock tokens”, of Tesla and Coinbase, brings the crypto and stock worlds together. Now a global investor can “own” a Tesla share using BUSD (the Binance stable coin version of USD) and even earn dividends. The stock token is pegged to the underlying share price, which means that for every tick in the share, the token’s price will follow the tick.
Binance said in a press release, “Binance is delighted to announce the official launch of its zero-commission, tradable stock tokens, allowing the users to trade fractional stocks. Stock tokens are denominated, settled, and collateralized in BUSD.”
Listed on April 12, at the last check, the Tesla stock token had a 24-hour volume of 882 tokens, while Coinbase had a volume of 2,436.
What is a stock token?
According to Binance, a stock token is “zero-commission digital tokens fully backed by a depository portfolio of underlying securities that represents the outstanding tokens.”
The very concept of a stock token is new, and thus the UK Financial Conduct Authority has ventured in to try and “understand” the offering and whether it complies with appropriate regulations. When an investor buys the stock token (even fractions are allowed), there is a corresponding share (an actual share) held by a third party called CM-Equity based in Munich, Germany.
Some of the points raised by regulators, as per reports, relate to how a stock token can be issued without a prospectus, as is the norm for all securities. If holders of the stock token enjoy all rights excepts voting, then this makes the token resemble a share in almost all respects.
For investors, the Binance offer allows them to get a stake in a highly valued stock such as Tesla, and the cryptocurrency exchange, Coinbase. The latter will also be a way to enter the crypto market without actually holding any crypto. The majority of the revenue of Coinbase derives from trading in bitcoin and Ether. As for any attendant risks in holding the stock token rather than an actual stock, there is no clarity. Binance itself does not hold the collateralized shares. The exchange urges investors to read its special service agreement before investing.
The recent listing of Coinbase on Nasdaq is a milestone. The listing was accompanied by a lot of curiosity, with one investor remarking he wouldn’t sell his stake for $250, the minimum mark at which the share was supposed to enter the books. The stock token is currently trading at $291.