In blockchain terms, an equity token is a collection of encrypted data (a block) which functions as an equity certificate. Equity tokens contain the same contractual information as physical or book-form share certificates, but the information is recorded on a blockchain rather than a share register.
An equity token is a form of security token which represents equity in an underlying asset – typically the stock of a company. As with shares, the terms and conditions applicable are set forth in the contract.
An equity token may entitle its holder to voting rights, to dividends, or to both. Subscription rights, appraisal rights and other entitlements may also be included in contracts, as with share certificates.
Alternatively, equity tokens may simply track the value of conventional shares and replicate their performance on the blockchain. In this case, equity tokens function as derivatives and do not entitle their holders to shares in stocks.
In all cases, equity tokens represent underlying assets – either directly or indirectly. This sets it apart from most of the blockchain tokens or coins offered to investors through initial coin offerings (ICOs). ICO tokens are typically utility tokens required to make use of a company’s services and the value of which is based on demand.
Equity tokens are offered to investors by companies through equity token offerings (ETOs).
The SIX Digital Exchange – an initiative of the SIX Swiss Exchange – is one of a number of projects aimed at establishing regulated exchanges for equity tokens.
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