Can Anyone Create an Equity Token?

In theory, anyone can create an equity token, but there are laws and regulations in your jurisdiction that must be followed. Those issuing equity tokens must follow applicable securities regulations, such as registration requirements and disclosure obligations. The company or asset being tokenized must also have a legal structure that allows for tokenization, such as a corporation. Creating equity tokens requires specialized technical knowledge and resources, including blockchain development and smart contract programming.

Which a tool such as SharesMint helps with the mechanics of a digital representation of a share , just as companies print paper shares and binders for companies.

What Are the Risks of Holding Tokenized Equity?

Like any investment, tokenized equity carries certain risks, including the decline in the value of the company’s equity. The value of tokenized equity may be subject to significant price fluctuations, particularly in the early stages of adoption.

More specifically to tokenization, laws and regulations are still evolving, which creates uncertainty and potential compliance risks. As a digital asset, tokenized equity may be vulnerable to hacking, theft, or other security breaches. If you lose your private keys to access your digital wallet, you will also lose your equity tokens forever.

How Are Dividends and Voting Rights Handled With Tokenized Equity?

The specific terms and conditions of dividends and voting rights for tokenized equity depend on the issuer but will be executed based on smart contracts. These are blockchain-based scripts that automatically execute preset terms among counterparties. Dividend payments can be programmed into a smart contract, allowing for the automatic distribution to token holders based on their ownership percentage. Voting rights can also be incorporated, too, enabling token holders to participate in governance decisions through blockchain-based voting mechanisms.

The Bottom Line

Tokenized equity represents ownership shares through digital tokens on a blockchain network, rather than paper share certificates. This divides equity into smaller, more affordable units, enabling fractional ownership and potentially increasing liquidity. The terms and conditions of the equity, such as voting rights and dividend distributions, can be programmed into smart contracts, automating the enforcement of these rules.

The tokenized equity market is still relatively new, and few companies have made the step of tokenizing their shares. Investors should carefully consider the regulatory and security risks before buying tokenized shares, and study the market before making an investment.

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