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The Binance exchange is launching into fractional share trading, starting with Tesla shares. A single share can therefore be split into multiple tokens, making it easier to access certain securities.
At nearly $700, Tesla shares are not within the reach of all retail investors. For Alphabet, Google’s parent company, the stock is even priced above $2,000. However, digital finance can contribute to greater liquidity in the equity market.
How can it do this? In particular by offering to acquire fractions of shares in the form of tokens. And Binance is counting on this new offer to further expand its customer base and trading volume.
But how does it work? In principle, a shareholder buys a full share of traditional stock. With fractional shares, investors can buy one hundredth of a share. And that share will take the form of a digital token.
“Each digital token represents a share of stock and is fully backed by a depository portfolio of underlying securities representing the outstanding tokens. Users will be able to trade fractions of tokens,” Binance details.
One hundredth of a share token is an equivalent fraction of a Tesla share. As for the price of these tokens, it is to be paid in Binance USD (BUSD), the exchange’s stablecoin. They are issued through Paxos.
Note that these tokens are not exchangeable for shares. Finally, it should be noted that the first financial product of this kind concerns Tesla. The stock is showing some volatility and its value is rising strongly.
But the carmaker is also, since 2020, a cryptocurrency player with a BTC capital of $1.5 billion. Tesla is just a first step though. “Binance will continue to meet market demand by listing more equity tokens and features. “
What’s the benefit to investors beyond improved accessibility? “Equity token holders are entitled to an economic return on the underlying shares, including potential dividends. “
Binance isn’t the first exchange to bring digital and traditional finance together, however. As early as October 2020, FTX was getting into stock tokenization with stocks like Tesla, Apple and Amazon.
In Europe, Bitpanda is also planning to diversify into this sector. Its French boss told us that from April onwards, investors will be able to invest in new digital financial assets, in particular fractional shares and ETFs.