Equity tokens are similar to equity shares because they represent an actual share in a company. Also referred to as ‘tokenized securities’, equity tokens are effectively similar to stocks and imply ownership and control of the investor. They are somewhat like traditional stocks and just like them; an equity token can buy you some level of ownership of an organization and its success. To some extent, all tokens could be seen as having some equity-like properties. The value of equity tokens is not just what people are willing to pay on an exchange, but it also holds an intrinsic value — that which is represented by the likes of revenues and IP of the company behind the token.
Unlike utility tokens that are used within the ecosystem, equity tokens constitute a share in the company and thus give the holder rights to the profits the company makes. In other words, tokenized securities provide investors with digital shares in a company.
Types of equity tokens:
There are many ways in which you can pay back your investors by way of equity tokens. Some of them are:
Royalty payments: Royalties are paid as a percentage of income, rather than a percentage of profits. In many jurisdictions, this is not considered a security.
Buybacks or buyouts: Typically, this also includes some kind of interest payment or possibly dividends before the buyout. In some ways, this is like a loan or a corporate bond. You are saying: I need some cash to build a business, and I’ll buy the tokens back from you, based on some formula we agree upon upfront.
Dividends or percentage of profits: Basically, this is stock. Smart contracts might allow you more flexibility in how you set up the dividends, but that’s what this is.
Straight equity: The token represents a percentage of the company and goes up and down in value according to the company’s value. Again, this is basically a stock, but unlike a stock, it may not give you voting rights in the company.
Here’s why you should be considering equity tokens:
For businesses where you want to take profits as equity is a natural way of sharing success with those who invested in your company in the first place
Equity tokens the most proven token economy in the world
Your tokens will retain their value as long as your company is making profits
It’s possible to issue tokens as non-voting share. This way you do not give away or out the control of your company, but instead, allow people to invest in it safely
It makes stock trading more accessible to an average investor and allows shareholders to take a more active interest/role in corporate governance since voting can be conducted seamlessly through blockchain
Because it is a form of a share in your company, your company will not have to function as a central bank to stabilize your token’s value nor will you need to incentivize the use of tokens or discount it anytime
You can accept investors from any jurisdiction
Are equity tokens the revolution the market is waiting for?
The introduction of equity tokens will make an impact as it would make use of the blockchain technology that in turn provides a safe and transparent path for real-world entities to issue equity tokens. They represent new-generation and easy way of releasing equity as compared to other complex models. Equity tokens are being seen as that thing which can be used to bridge the gap between the blockchain and mainstream consumer means of investment. With its advent, any company with a business-to-consumer application looking to leverage the blockchain could lift their profile with equity tokens.
It will give investors the freedom to make use of digital services with greater transparency, less friction, and monetization. It is also being tipped as the innovation and a boon for businesses with great products and services as they can now release digital equity tokens that represent ownership shares in their companies to a community of enthusiasts that are most eager to see them succeed.
In the near future, there will be plenty of opportunities for those investing in equity tokens based on the scale and fungibility they bring. Though at a nascent stage but equity tokens are likely to explode in value and bring in more prosperity for the investors.