Crypto exchange giant Binance announced an expansion in investment offerings with the platform’s latest addition of stock tokens.
What exactly are stock tokens? According to Binance’s blog post, these tradable tokens will enable potential crypto investors to gain exposure to the traditional stock market. They are zero-commission digital tokens that are fully backed and collateralized by a third party — which allows its price to be pegged to the underlying share price.
Stock tokens are tokens that closely track the performance of traditional financial securities, particularly shares of publicly traded companies. Stock tokens are delta-one products that are backed by physical shares. This means for a given instantaneous move in the price of the underlying asset there is expected to be an identical move in the price of the derivative.
In order to facilitate the sale and storage of stock tokens, Binance has partnered with investment firm CM-Equity AG and Swiss-based tokenization platform Digital Assets AG.
Potential investors in Binance’s stock tokens are eligible to receive dividends. That being said however, Binance’s current offerings are limited to Tesla and Coinbase stock tokens — neither of which pay out dividends.
Like many modern brokerages like Robinhood, Binance will allow fractional shares, equating to a minimum investment of 1/100th per token. Tesla and Coinbase shares traded at $739 and $342 into Friday market close, meaning that Binance users can invest as little as $7.4 or $3.4 in the respective companies.
Is there a Real Appeal In Binance’s Stock Tokens over Traditional Shares?
While there is certainly novelty in stock tokens, it poses no real benefit over traditional shares. Zero-commissions are nothing new in the brokerage industry, and unlike cryptocurrencies, the trading of stock tokens can only occur during traditional market hours.
While it may be convenient for some to consolidate their crypto and equity investments into one platform, there is no clear incentive — at least for now.
That being said, Aaron Gong, Binance’s VP of Futures, revealed that the Tesla stock token recorded $10 million in trading volume, demonstrating a clear demand from users. How Binance’s latest rollout will be received in the long-run remains to be seen, however.
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