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By Daniel CreechApril 13, 2021

Binance provides a glimpse into the future of digital securities

Binance, the world’s largest cryptocurrency exchange by volume, made a big announcement this week: It will allow users to buy shares of Tesla (TSLA) on its platform. 

In a blog post on April 12, 2021, Binance announced it will offer “zero-commission, tradable stock tokens” on Tesla stock. Each token represents 1/10 of a share of Tesla. In other words, Binance users can get exposure to Tesla for less than the price of a full Tesla share (currently over $700).

We should expect the company to expand into more stocks soon. Binance’s plans are pretty clear in the announcement, which says, “Binance will continue to respond to market demand by listing more stock tokens and features.”

In other words, this is just the start.

In short, Binance just made a huge first step into the “traditional” world of stock investing. And it gives us a clear picture of where things are headed…

Binance’s new stock token is a great service for beginner investors, who typically don’t have a lot of money in their investment account. Newer brokerages like Robinhood give their customers the ability to trade fractional shares. Without this feature, many users wouldn’t be able to invest in companies with high share prices. For example, one share of Amazon (AMZN) trades for over $3,000. 

Binance isn’t the only company offering fractional share trading. Other companies such as payment processor Square allow you to invest in stocks with as little as $1.

But its new “tokenized” service gives users exposure to stocks in a different way than other platforms—and it shows us where the industry is heading…

How do “stock tokens” work?

As you probably know, Binance built its business around crypto. Its users are already comfortable with digital assets like bitcoin (BTC).  

With the new service, customers will purchase stock tokens using the Binance stable coin (BUSD). As you probably know, stable coins are pegged to fiat currencies like the U.S. dollar. So in this case, one BUSD is worth $1. Users will be able to buy stock tokens using BUSD, which allows for faster settlement times than fiat currency.

Binance says the stock token owners will “qualify for economic returns on the underlying shares, including potential dividends.” In other words, the tokens should act the same as the stock they’re based on. 

The stock tokens are backed by underlying securities held by a third party. So if you buy a fractional share of Tesla, the actual shares of Tesla are held in another account. 

Again, Binance says investors will receive all benefits… just like owning the actual stock. If Tesla paid a dividend, it would be passed through to the token holder.

All stock token trades are zero-commission. This puts Binance in a similar position to other brokerages like Fidelity, Schwab, and Robinhood. Most big brokers have slashed commissions to zero in recent years.

The future of crypto is mainstream

With each passing day, cryptocurrencies are becoming more accepted… and more accessible. The biggest and most recognizable companies on the planet are getting into crypto—including names like Square, PayPal, and Visa.

One of the reasons bitcoin and other cryptocurrencies continue to move higher is because it’s easier than ever for individuals, institutions, corporations, and hedge funds to buy them. And we’re still in the early stages of the trend. As I mentioned last month, Wall Street giants like Goldman Sachs and JPMorgan are getting into crypto

Binance’s new stock token program is another sign that digital assets are going mainstream. The company is blurring the line between crypto and “traditional” investments… since users will be able to buy and sell stocks and cryptos on the same platform. 

I expect other exchanges to follow Binance’s lead—if they don’t, they risk losing customers. Crypto might not be as popular among older investors, but most younger customers will prefer a platform that lets them trade both stocks and cryptocurrencies.

And why stop there?

The next step will be the option to purchase security tokens on the same platforms. Long-time readers should be familiar with security tokens. They’re similar to stocks, since they represent ownership in a business. And just like stocks, they can pay dividends to their owners. 

But unlike other digital assets, security tokens offer access to small businesses at their earliest stages, giving investors a shot at the kind of gains usually restricted to wealthy private investors… and are gone by the time a stock goes public via a traditional IPO. 

Here at Curzio Research, Frank created the Curzio Equity Owners (CEO) token. It currently trades on the MERJ exchange. Like many security tokens, there isn’t a lot of volume… yet.

But as the recent Binance announcement shows us, the industry is expanding to offer investors more access to a variety of digital securities, including tokens linked to the stock market. Long-term, you should expect trading volumes for these newer types of assets to explode higher. 

We’re seeing bull markets in cryptocurrencies right now. And security tokens are likely to be next… 

Stay tuned.

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Daniel Creech is a Curzio Research analyst with over a decade of experience. He writes on macro trends, large- and small-cap stocks, and digital securities. He’s a regular contributor to Wall Street Unplugged, Curzio Crypto, Curzio Research Advisory, and The Dollar Stock Club.

P.S. The security token market is quietly revolutionizing the entire financial industry… And once it goes fully mainstream, the biggest gains will have already gone to the smart investors who caught on before Wall Street. Most people will miss out on this once-in-a-lifetime opportunity to create generational wealth. Don’t be one of them.

Find out why Frank himself has gone “all in” on security tokens.

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