Un equity token is a type of security token it works more like a traditional stock asset. In other words, those who hold equity tokens have some form of ownership in their investments. Each token represents a percentage of the property they actually have. In most cases, equity tokens represent a third-party asset, property, or company.
These tokens can be represented in many ways, but the most common are:
- Options Contracts
- Tokenized Real Estate
- Tokenized Companies
They usually refer to equity tokens as "The action of the XXI century". This is because thanks to equity tokens, holders are not only entitled to ownership, but also entitled to a portion of the company's profits and the right to vote on its future. The only significant difference between an equity token and a traditional share is the property registration method. A traditional stock is registered in a database and can be accompanied by a paper certificate. An equity token for its part is recorded in a blockchain.
Why were equity tokens created?
With the emergence of blockchain technology, many companies considered that they could carry the model of Initial Public Offering (IPO) to a new operating scheme. To achieve this, the equity tokens were created. These tokens are a blockchain representation of ownership of an asset. With that companies can issue shares and voting rights on a blockchain. All with the aim of boost the market. Additionally, a lender could create tokens that represent the debt the company owns, thereby creating an enabling trading environment for them.
Another point in favor of the equity token is that can be offered through a public or private placement. This great flexibility is also accompanied by ability to secure investor rights, who not only participate in the development of the blockchain network, but also receive monetary payments depending on how the token develops in the cryptocurrency market.
Finally, equity tokens are interchangeable and are managed by a regulatory body within your country of issue. It is all this group of advantages that led to the creation of equity tokens within the blockchain financial world.
How are equity tokens issued?
To issue an equity token it is necessary to carry out a series of procedures. This is so because the equity tokens have to respect the regulations of each country to carry out purchase and sale campaigns for shares or securities. These campaigns are called the Equity Tokens Offer (ETO). Among these steps we can mention:
- First register on an exchange platform. This step will allow the company to issue its equity token and record all of its information.
- Declare commercial provisions. Like all investment platforms, an ETO cannot be carried out without first defining the commercial terms. This means that the blockchain company must inform potential investors about the investment terms and provisions.
- Perform a pre-ETO. These campaigns are designed to offer a certain amount of token privately. Their objective is to recognize the impact that ETO has. If the private sale reaches the desired level, this activity will suffice, otherwise, the public sale is finally carried out.
- Public offers. This offer is only necessary when the collection goal was not reached in the private offer. At that point, the general public, like companies and individual investors, can buy the rest of the tokens. After this, a binding agreement is signed between the parties, whereby investors become legally recognized owners of the acquired tokens.
Some examples of equity tokens
Some current examples of companies that have carried out ETO and manage the equity token are the following:
- The Elephant Private Equity Coin
- The dao
- RRT Token