Two investments can display the same company name and a similar price on an app, yet give their owners very different rights. One may be a genuine share in the business, while the other is a token intended to track that share’s value.
Both could rise when the company’s share price increases, but the similarity may end there. The token holder might not have voting rights, a direct claim on dividends or the ability to transfer the asset into a conventional brokerage account.
That distinction can be obscured by familiar stock tickers, simple trading interfaces and prominent buy buttons. The experience may look like buying shares even when the legal contract behind the transaction is entirely different.
The London Stock Exchange is examining ways to place shares on blockchain networks while maintaining the rights associated with ownership. Its 1 September announcement with Payward described a structure that remains under assessment and would require regulatory approval. Separately, the exchange plans to list xStocks on its LSE 24 venue in 2027, also subject to approval.
The proposals represent two separate approaches. One seeks to preserve the relationship between investors and the companies they own. The other would provide an additional trading venue for a product linked to shares, without necessarily making its users shareholders in the underlying company.
That difference matters as tokenisation becomes more widely promoted as a way to cut trading costs and broaden access. The technology could make ownership easier to record and transfer, but it could also create more opportunities to speculate on prices without delivering the rights traditionally associated with shares.
What a conventional share provides
A share represents an ownership interest in a company. The precise rights depend on the class of share and the rules that apply, but ordinary shareholders normally participate in the financial performance of the business and can vote on certain corporate decisions.
When a company pays a dividend, eligible shareholders receive it. If the company fails, shareholders have a residual claim, meaning they are entitled to whatever remains after higher-ranking creditors and other claims have been settled. In many insolvencies, nothing is left, and absorbing that risk is part of owning shares.
Investors do not usually appear personally on every record used to administer those rights. Brokers commonly hold shares through nominee structures and maintain their own records of the customers entitled to the benefits. Those customers are known as beneficial owners.
The SEC distinguishes beneficial ownership from direct registration, under which the investor’s name is recorded with the company itself. Even ordinary brokerage accounts therefore depend on several institutions to keep records and pass rights along. Voting instructions and dividend payments move through that chain of intermediaries.
Blockchain tokenisation creates another way to record and transfer control. A token is a digital unit that can move between accounts on a blockchain, with the network recording who controls it. The legal arrangement around the token, however, decides what that control means and what the holder can claim.
A company could use blockchain technology for its own shares. If the ownership register recognises the transfer, sending a token could transfer the share itself. The SEC staff’s January taxonomy describes issuer-sponsored arrangements alongside products created by unrelated third parties.
That taxonomy is an explanation of different structures, not blanket approval for every token that carries a company’s name. Used in an appropriate way, blockchain records could preserve existing shareholder rights while simplifying administration and transfers.
The difference between shares and share-linked tokens
The more confusing situation arises when a third party creates a product linked to a company’s shares.
In one possible arrangement, a business buys shares and places them with a custodian. It then issues tokens designed to follow the value of those holdings. Customers who buy the tokens acquire the third party’s product rather than automatically acquiring a direct relationship with the company whose shares provide the backing.
There are consequently two separate investments: the underlying shares and the instrument that provides exposure to them. Holding shares behind a token may help it track the company’s price, but it does not automatically transfer every shareholder right to the token holder.
Kraken’s xStocks documentation makes that distinction. It describes tokens backed by underlying equities but says holders do not receive the voting rights attached to those shares. Any economic benefit from dividends is reflected through an adjustment to the holder’s effective exposure rather than through a separate cash payment.
The tokens also cannot be moved into a normal brokerage account as the underlying shares.
The dividend mechanism can be illustrated simply. If an investment represents $100 of exposure to a share and receives a $2 net dividend, that amount could be reinvested at a share price of $100. Ignoring fees and any movement in the price, the reinvestment would create another 0.02 shares of exposure. The investor would then have exposure equivalent to 1.02 shares rather than one.
The holder has gained additional exposure, but the $2 is no longer available as cash. Products use their own methods for calculating adjustments and tax treatment. In xStocks, the displayed effective balance can rise through a multiplier even though the number of tokens held on-chain remains unchanged.
The financial benefit comes from the token’s design. Whether someone is a shareholder depends on a separate legal relationship with the company whose shares support the product.
The middle structure described in the source material is a possible legal model, not an already approved LSEG product. The precise position depends on the product terms and the jurisdiction in which it operates.
What happens if the issuer fails?
The distinction between ownership and exposure becomes particularly important when something goes wrong.
A shareholder’s claim against a company may be very different from a token holder’s claim against the business that issued the token. If that issuer becomes insolvent, recovery will depend on the custody and collateral arrangements and on how insolvency law treats those assets.
Evidence that tokens are backed by shares proves only that the assets exist. It does not, by itself, establish how holders can reach them. The contract determines that.
Holding tokens in a personal wallet may give an investor control over the transfer of those tokens, but the underlying shares still depend on the businesses responsible for holding and administering them. CryptoSlate’s coverage of companies holding tokenised equity supports traces that reliance behind the promise of easier transfers.
Greater access can nevertheless be valuable. Investors who find it difficult to buy foreign shares may benefit from small purchases and transfers between compatible applications. Trading across time zones can also be more convenient, and some buyers may knowingly prefer that flexibility to the ability to vote at a shareholder meeting.
Fractional investing is already available through conventional brokers, however, so the advantage of a tokenised product depends on the services an investor can actually access.
Legal restrictions remain another barrier. Kraken excludes several jurisdictions, including the US, from its xStocks offering. Software that can be transferred around the world still has to operate within distribution rules. Control of a token in a wallet does not create a universal right to purchase every product.
Costs, liquidity and longer trading hours
Claims made for tokenised stocks also need to be tested across the whole transaction.
Blockchain records can make token transfers visible, but they do not eliminate custody agreements or competing legal claims. Businesses may automate parts of settlement, while investors can still face conversion charges and a difference between the price at which they buy and the price at which they sell.
Kraken’s fee documentation, for example, distinguishes between purchase methods and notes that some transactions can include a spread. A claim of lower costs is meaningful only if the saving remains after every charge has been included.
Longer trading hours do not automatically create deeper liquidity. Token markets can remain open at weekends while the underlying stock exchange is closed. During those periods, traders have fewer ways to buy the actual shares or offset their exposure, and token prices can move away from the stock’s last quoted price.
If trading is divided between venues that cannot interact, each market may also have fewer counterparties willing to trade.
The commercial incentive for platforms is clear. Firms that earn transaction fees or a share of the spread can benefit when customers trade more frequently. They may reduce the charge on each transaction and still increase their overall revenue if activity rises sufficiently.
For investors, the relevant question is whether access improves the range of investments available or lowers the total cost. Simply increasing the number of trades is not a substitute for either outcome.
The risks of borrowing against tokens
More trading hours and easier access can also turn exposure to a company’s shares into an asset available for continual speculation. That risk grows if the tokens become sufficiently popular to be used as collateral for borrowing.
Consider an investor holding $100 of tokens who borrows $50 against them and uses the loan to buy another $50 of exposure. The investor now has $150 exposed to the share price and owes $50.
If the tokens fall by 20%, the holding is worth $120. After deducting the debt, $70 remains. The investor’s original $100 has therefore lost 30%, before interest and fees are considered. Depending on the lending terms, the position could be sold automatically if the collateral falls below the required level.
Borrowing against securities already exists in conventional financial markets. Tokenisation could make the practice available through more applications and connect it to automated liquidation when collateral requirements are breached. If several borrowers reach those thresholds at the same time, forced selling could add pressure to a falling market.
The Financial Stability Board’s 2024 assessment examined the possibility that easier use of assets as collateral could expand borrowing and transmit losses. It also recognised potential efficiency gains.
At that time, the board judged that tokenisation remained too small to create a material financial-stability risk. Its warning concerned the consequences of broader adoption and more interconnected structures, rather than concluding that stock tokens had already destabilised markets.
Do tokens support share prices?
Another claim is that tokenisation could support the price of the underlying shares.
When an issuer buys shares to back newly created tokens, that activity can add demand in the underlying market. But when an investor moves from ordinary shares into tokens, the change may simply relocate existing exposure. If tokens are later redeemed, the process could work in reverse.
A faster or wider distribution system creates another route for buying and selling, but the effect on prices depends on the balance between those decisions.
There is also an important distinction between funding companies and trading shares that already exist. Most secondary-market purchases transfer money to an existing shareholder rather than to the company itself.
A more accessible market could indirectly help a company by making future fundraising easier, but a token trade does not automatically put new money into the business or increase its productive capacity.
The central risk is to treat a larger market for exposure to shares as proof of progress in itself. Tokenisation may broaden participation while giving new investors fewer rights and more opportunities to borrow against assets they do not fully understand.
Blockchain transaction records offer only partial protection when the obligations that matter most are contained in contracts elsewhere.
The LSEG proposals highlight that stronger ownership and wider distribution are separate design choices. Tokenisation may deserve credit where it reduces the total cost of investing or makes enforceable ownership easier to hold and transfer.
Where it mainly adds longer trading hours and borrowing opportunities to products offering weaker claims, the companies selling access may gain more than the investors buying it. The rights and protections attached to the product should determine how much enthusiasm it warrants.
Andjela, who has a classical education and a background in politics reporting, entered the cryptocurrency industry in 2018.
Liam Wright, also known as “Akiba”, is a reporter, podcast producer and Editor-in-Chief at CryptoSlate. He believes decentralised technology has the potential to make…
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