Tokenized equity on smart contracts hold a great deal of promise, the biggest opportunity being liquidity for secondary offerings tied to the blockchain. However, regulation is likely to play a role in how the smart contracts are structured to ensure compliance. It is certain that tokenized equity can provide immediate liquidity in principal, but the practical application is much less simple. Here are a few reasons why:
Numbers three and four above are relatively straight forward on a smart contract. Maintaining shareholder restrictions takes a little more creativity and engineering when building a smart contract.
Restricting the number of investors on an ETH smart contract would require one or more of the following:
New tokenized funds have been cropping up all over the world. Those outside the United States hold all the benefits of liquidity one might expect from tokenized equity. However, such funds also exclude relevant adherence to U.S. securities laws–which increases the relevant risk. Such laws are mechanisms implemented to protect the investing public. Accredited investor status, hold/sale restrictions and shareholder number thresholds are some such mechanisms. Luckily many of these can be engineered into an Ethereum smart contract. This is something we are currently working on. What are some ways in which you have seen these items overcome? How are others doing it?