Tokenized stocks are blockchain-based digital representations of traditional equities. A token tracks the price of a listed share, but the two common ways of building that token put the holder in very different positions.
In the most common structure, an issuer buys the underlying share on a traditional exchange, places it with a regulated custodian, and mints a matching token on-chain. Redemption reverses that sequence. Each token is backed 1:1 by actual shares held in regulated custody, and third-party custodians hold the underlying assets on the issuer's behalf. One issuer's token can be redeemed for its cash value or the underlying share, and the same issuer reflects dividends, stock splits, and reverse splits through an onchain rebasing mechanism.
Holders of custody-backed tokens are not registered shareholders of the listed company. Smart contracts can automate dividend distribution, voting rights, and compliance checks where an issuer builds them in, but a separate structure exists where the company issues shares directly on-chain and a transfer agent maintains the register, giving the token holder the legal standing of a registered or beneficial owner, including voting rights and dividend entitlement. Which of these applies depends entirely on the issuer.
Tokenized stocks trade on blockchain networks that never close, which enables 24/7 global trading. Traditional equities take one to two business days to settle, while tokenized equities settle almost instantly, often within seconds or minutes. Tokenized stocks also feature native fractionalization at the protocol level, so a position can be sized to an exact dollar amount.
The US SEC's staff statement on tokenized securities distinguishes issuer-sponsored tokenized securities from third-party tokenized securities. Custodial tokenized securities are created when a third party tokenizes securities issued by an issuer and creates a security entitlement formatted as a crypto asset. A separate synthetic category exists where the holder receives the economic returns of the underlying security but not an ownership interest in it.
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A tokenized stock is a blockchain-based digital representation of a traditional equity, structured either as a custody-backed token or as a contract that tracks the share's price.
The common structure has an issuer buy the underlying share, place it with a regulated custodian, and mint a matching token 1:1 against it; redemption reverses that sequence.
Holders of custody-backed tokens are not registered shareholders of the listed company. Voting rights and dividend entitlement only apply in a separate structure where the company issues shares directly on-chain and a transfer agent maintains the register.
Some issuers let holders redeem a token for its cash value or the underlying share; this depends on the specific issuer's terms.
The US SEC's staff statement on tokenized securities classifies them into issuer-sponsored and third-party tokenized securities, with the same federal securities laws applying either way.
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