Digital Stocks are tokenized versions of stocks. Essentially one token equals one stock, Example: 1 Tesla Stock = 1 Tesla Digital Stock. The tokens are of course blockchain based and maybe issued on various blockchains such as Ethereum. Digital Stocks can be traded when stock exchanges are closed as the tokens themselves are not listed on stock exchanges such as the NYSE or Nasdaq. Rather the tokens are on a crypto or digital asset exchange which are generally open 24/7. In many cases the Digital Stock owners are entitled to the dividends that are paid out to the stock holders.
Digital Stocks open new trading opportunities as it allows investors to access different markets globally that they may not have been able to. For example, a Hong Kong based trader who does not have access to U.S. company stocks such as Tesla can now invest in the company via Digital Stocks.
This speaks to the emerging token economy where assets and commodities will be tokenized via blockchain technology. The first company to offer Digital Stocks is DX Exchange which is a Nasdaq powered EU regulated Crypto and Digital Stocks exchange. Launching on January 7th, 2019 they will offer the following Digital Stocks:
Here is a excerpt from DX Exchange’s website on how their Digital Stocks offering works:
MPS MarketPlace Securities, Ltd, under the supervision of the Cyprus Regulator, CySEC, purchases real world stocks, in accordance to token demand in the DX.EXCHANGE platform. They generate smart contracts, ERC20 tokens created on Ethereum’s network to represent those stocks.
The tokens offered for sale are be based on leading public company shares listed on the biggest exchanges like NASDAQ, NYSE, Hong Kong Exchange and Tokyo Stock Exchange. Each Dx.exchange customer, interested in Digital Stocks, is asked to go over an additional small approval form with Term & Conditions, MIFID 2 compliant, where he will need to approve to enter into an agreement with MPS for buy/sell of Digital Stocks. MPS MarketPlace Securities, Ltd is the trust holder of the stocks on behalf of the token holders. Since Digital Stocks are not like CFDs with leverage, there are no carrying costs for the token holders. Each token is backed 1:1 by one share of real stock. These shares are held in a segregated account.
Also, here is a video released by DX Exchange which summarizes how their Digital Stocks offering works.