💰Tokenization and Company Evaluation

Equity share is a typical kind of book-entry interests, and also an important trading object of capital markets.

IPO creates capital premium

A company may select to list its shares on an open market, so as to facilitate public investors to buy in and sell out its equity more conveniently, which means to release the liquidity of its equity greatly, and as a direct consequence, the equity value of the company or its stock price will usually increase within a very short period of time dramatically. This is the basic principle that IPO can create capital premium.

Tokenization of Equity Shares

Similarly, if adopting blockchain to book companies' equity, it will become very convenient to use cryptocurrencies or Central Bank Digital Currencies to pay the equity consideration, and, under the automatic control of smart contracts, some concepts like "Delivery Versus Payment", "Payment as Settlement" and "No Clearing Transfer" etc. can be fully realized with a fairly low cost and much higher efficiency. This is equivalent to connecting the companies' equity to the crypto markets with trillions of dollars in liquidity, so that the companies may have an opportunity to have their equity re-evaluated and re-confirmed with the robust support of the huge liquidity.

Web 3.0 Capital Markets

However, tokenization of equity shares does not simply mean to define a structured digital object representing equity value or capital contribution, or to move the booking records of “Register of Shareholders” or "Register of Members" onto the blockchain. What's more important is to coordinate all facts that may influence the equity value of a company into the automatic system of blockchain, and to enable smart contracts to get full control over all activities of share transaction and corporate governance, so as to ensure all those legal behaviors can be carried out strictly in line with the internal governance rules (like the articles of association or bylaws), as well as the external governing laws and regulations (such as the Securities Act and the Securities Exchange Act). So that, the capital markets can rely on the rigid logic of smart contracts to automatically control the creation, change, exercising, and elimination of the equity rights of shareholders, i.e. by implementing the concept of "Code Is Law" to establish a decentralized and trustless “Web3.0 Capital Market” in real sense.