A wide variety of use cases can be found among security tokens. While we have highlighted a number of these use cases in two previous articles, in this article we would now like to look at the tokenization of private and publicly traded companies.
Tokenization of a Private Company
The shares of a Delaware LLC in the US can already be tokenized, and those tokens represent what the company holds on its balance sheet. In the German-speaking countries, several firms are working on streamlining the tokenization process for the shares of an AG or GmbH including Amazing Blocks in Liechtenstein.1
Each RealT token represents the tokenized shares of a Delaware-based LLC that holds a specific investment property. This
token offers a percent of the rent collected from the property after expenses are paid, and the dividend payment is made daily to each investor in the form of cryptographic assets. RealT has successfully tokenized 75 properties over the last 2 years, and has enabled whitelisted investors to trade security tokens on Uniswap.
The tZERO token pays 10% of adjusted gross revenue of the tZERO exchange to token holders on a quarterly basis, subject to board approval and the conditions outlined in the offering memorandum. The token sale collected more than $130 million.
The MERJ Exchange is an international securities token exchange. While the tZERO exchange caters to the US, MERJ focuses on non-US investors. Therefore, both exchanges can list the same securities and arbitrage opportunities can arise. The MERJ Exchange token (MERJ-S) is an equity token for the Seychelles-incorporated company, and the token lives on Ethereum as an ERC-20. They hope to raise $4 million and accept accredited investors only. The ERC-20 tokens will be distributed once the security token offering sale closes. The sale is currently still open.
Tokenization of a Publicly Traded Company
The shares of a publicly traded company can be tokenized. The anti-Wall Street renegade Patrick Byrne was behind the first company to do this. His company Overstock.com (OSTKO) tokenized their shares and launched the first ever security token airdrop in 2019. A digital dividend was paid out to each OSTKO investor at a ratio of 1:10, meaning that one share of Series A-1 was issued for every ten shares of common stock, Series A-1 or Voting Series B Preferred Stock.2 This helped onboard thousands of users to the new security token exchange tZERO, because investors had to make an account on tZERO in order to claim their new digital share.
Overstock.com is a big e-commerce NASDAQ listed company in the US. Their security token OSTKO allows its holders to earn annual dividends. Since the token is listed on both a traditional securities exchange and on a security token exchange (tZero), an arbitrage opportunity exists between the shares.
There are many security tokens that are issued in the course of a Security Token Offering (STO). In many respects, these STOs are similar to the traditional ICOs that have been popular in the crypto community in recent years, but they are also different from them in significant ways, which we will look at in another article next week.
This article is an extract from the 90+ page Security Token Report 2021 co-published by the Crypto Research Report and Cointelegraph Consulting, written by thirteen authors and supported by Crypto Finance, Blocklabs Capital Management, HyperTrader, Ten31 Bank, Stadler Völkel Attorneys at Law, Riddle&Code, Coinfinity, Bitpanda Pro, Tokeny Solutions, AlgoTrader, and Elevated Returns.