An Equity Token is a type of Security Token backed by some type of traditional asset, be it traditional company shares or real estate . Each token represents a part of the tokenized property. The main difference with traditional stocks is that while a traditional stock is reflected in a database or even on paper, an equity token does so on the chain of blocks of a certain blockchain.
The idea behind equity tokens is that companies can issue shares and voting rights directly on a blockchain, improving liquidity and reducing transaction costs associated, for example, with the fees and royalties of the main world exchanges.
The launch of an Equity Token is not very different from any other security, first we will have to choose the Exchange where we want to list our project as well as the blockchain . Then, we must define the conditions that are granted to the “tokenists” for the fact of keeping the token in their wallets. Finally, we must assess whether we want our ETO – Equity token offering – to be made through a private or public offering or a mix of both.
All this has not been overlooked by European regulators and the FCA – Financial Conduct Authority – of the United Kingdom. When Binance launched the first “stock tokens” (a form of Equity token), regulators quickly warned that if such tokens were transferable, tradable, paid dividends, and options were executed in euros, those tokens were rated securities and its issuance had to be carried out after the publication of an informative brochure under the standard of one of the regulators of the ESMA – European Securities and Markets Authority.
Binance and the trading company of these assets, CM-Equity, argued for their part that the issuance conditions correspond to those of a Total Return Swap (financial contract in which capital is granted in exchange for cash flows) that It is not transferable to other users, it does not grant voting rights and it is set in Binance BUSD's own stablecoin, not in euros.
In Spain, we currently find projects such as BME's within the CNMV Sandbox, which aims to create a Marketplace in which SMEs can offer and seek financing based on the Ethereum network. This can be a first step for the launch of Equity tokens with guarantees and backing from the regulator.
Undoubtedly, at the moment there is no official definition of what it is, what are the characteristics and conditions of issuance of an Equity Token , so we will have to wait for the launch of the MiCA directive to see what conditions are required by the regulator.
Stock Token Offerings (ETO)
This is a way of raising funds for any company that involves the issuance of Blockchain Assets Tokens. These tokens can be issued in both public and private placements and can be conducted through any regulatory entity in your home country.
The Equity Token Offering process described below is similar to any issuance of shares by any other company that is not related to the Blockchain. However, the platforms that carry out this process are different. The process below shows step by step how to carry out an Equity Token Offer for any Blockchain development company that begins with a campaign to investors informing them about the company's move to offer an Equity Token.
Stock Tokens are about to become a critical part of future Initial Coin Offerings (ICOs) as they offer start-ups the ability to enter financial markets, which would otherwise be difficult. However, the issue surrounding the issuance of equity tokens remains regulations that have yet to be finalized through a recent bill passed by Delaware that allows companies to store the names of their shareholders in Blockchains allows. Blockchain based on stock trading.
The ETO will predominantly become the preferred form of fundraising as it will offer a lot of value to investors as well as investment value to companies. An Equity Token, like a stock, is more of a security, which means that regulations must be followed by creating a form of confidence on the part of investors. This is therefore more likely to offer more funds than any other fundraising method launched by Blockchain companies.