The era of round-the-clock stock trading is here, if you know where to look.
Binance on Monday began allowing its non-U.S. based users to trade a tokenized version of Tesla Inc. stock, joining a growing list of cryptocurrency exchanges that are setting their sights on the world of traditional finance.
At first glance, the stock tokens might seem like a solution looking for a problem.
Fractional shares and after market trading are common features offered by U.S. brokerages, but for investors based outside of the U.S. the offerings provide ready access to the country’s $47 trillion stock market without having to jump through regulatory hoops or having to wake at odd hours to transact. And, on some exchanges such as FTX, cryptocurrencies can be used as collateral for buying stocks on margin.
“Binance serves many users around the world and we are very pleased to be able to help them participate in the equity market,” said Binance Chief Executive Officer Changpeng Zhao in a statement. “Stock tokens demonstrate how we can democratize value transfer more seamlessly, reduce friction and costs to accessibility, without compromising on compliance or security. Through connecting traditional and crypto markets, we are building another technological bridge for a more inclusive financial future.”
On the first day of trading on Binance, volume for the Tesla token was about $10 million, according to a spokesman. That’s a drop in the bucket compared to Tesla stock’s one-year average daily trading volume of almost $57 billion, but if it were a cryptocurrency tracked by CoinMarketCap.com it would have been one of the 100 most liquid coins.
How the tokens work varies from exchange to exchange.
On Binance and FTX each token is backed by a share of the underlying stock through partnerships with German financial firm CM Equity AG and Swiss-based Digital Assets AG. Token owners are entitled to some, but not all of the benefits of owning the actual stock. Dividends accrue to token holders on both Binance and FTX, but voting rights reside with CM Equity, which according to FTX may choose to vote the shares “in its discretion.”
Synthetic Stand-Ins
On other exchanges like Terraform Labs’ Mirror Protocol, the tokens are synthetic stand-ins for the stocks. Prices are tracked by a so-called oracle system that cross references the token price against its real counterpart.
Whether backed by actual shares or a synthetic version of a stock, tokens seek to solve the same core problems, according to Do Kwon, the CEO and co-founder of Terraform Labs.