Crypto exchange Binance has ventured into the space of tokenized stock trading, following the likes of FTX and Bittrex Global.
To begin with, Binance has listed Tesla stock tokens, meaning the exchange's users can now buy Tesla tokens representing its shares.
One Tesla stock token represents one share of the company. Users, however, can buy fractions of the token, with the minimum trade size being one-hundredth of the token.
The fractionalization of stock tokens makes them more affordable. One Tesla stock, for instance, is currently priced at around $700, which is quite expensive.
"Stock tokens demonstrate how we can democratize value transfer more seamlessly, reduce friction and costs to accessibility, without compromising on compliance or security," said Binance CEO Changpeng Zhao.
Zhao first hinted at the launch of tokenized stock trading service earlier this year. He told The Block at the time: "We're definitely looking at it."
"We do try to copy innovation when innovation is good," Zhao said at the time, referring to FTX's similar service.
Binance is not charging any commission for trading stock tokens. It is not clear what the exchange's business model is around the service. The Block has reached out to Binance and will update this story if we learn more.
FTX charges the same commission for their service as for all its other markets, i.e., 2-7 basis points depending upon trading volumes, CEO Sam Bankman-Fried told The Block.
"We also let any third parties, who have KYCed with us and CM-Equity AG, create/redeem/provide liquidity," said Bankman-Fried.
While Binance is advertising its service as "commission-free, the exchange could be charging a spread to create/redeem, according to Bankman-Fried. "Binance's desk could be the only market maker," Bankman-Fried told The Block.
Binance's service follows traditional market hours. Tesla's stock token, for instance, will follow Nasdaq market hours, a Binance spokesperson told The Block. FTX and Bittrex Global, on the other hand, offer 24/7 tokenized stock trading.
When asked why to follow traditional market hours, the Binance spokesperson told The Block: "Stock tokens are fully-backed, and the trades are executed in real-time. Hence, trading of stock tokens follows the underlying stocks' traditional trading hours."
"Each token is fully backed by a depository portfolio of underlying securities that represents the outstanding tokens," said the spokesperson. "Our partner CM-Equity AG, a licensed and fully regulated asset management firm in Germany, entrusts the acquired shares to a third-party brokerage firm for custody. In addition, CM-Equity AG will be monitoring all trading activity for compliance."
Binance's service isn't 24/7, maybe because their internal trading desk doesn't know how to price it outside of liquid market hours, Bankman-Fried told The Block.
Binance's stock tokens are priced and settled in BUSD, meaning users can buy and redeem these tokens via the exchange's stablecoin, issued by Paxos. FTX's stock tokens, on the other hand, are quoted in "USD stablecoin," meaning users can buy and redeem in a range of options, including the U.S. dollar, as well as USDC, BUSD, HUSD, and PAX Standard stablecoins.
It is worth noting that stock tokens are not shares, but they only give exposure to underlying shares and potential corporate actions, including dividends and stock splits.
Binance said it would list more stock tokens in the future based on market demand.
To get started with the stock tokens service, Binance users will have to go through know-your-customer (KYC) measures, including submitting identity documents and completing facial recognition verification.
Additional KYC measures, including proof of address, will be required for German residents. Meanwhile, the service is not available to residents of the U.S., mainland China, Turkey, and other restricted jurisdictions.
Update: This story has been updated to include comments from FTX CEO Sam Bankman-Fried.
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