What Is an Equity Token Offering (ETO)?

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Automata

2 min readMay 27, 2019

Equity tokens (ETOs) offer an exciting new medium for companies to issue shares in the form of digital tokens. Unlike initial coin offerings (ICOs), ETOs have the potential to radically improve the way in which companies issue shares and unlock global liquidity.

What Is an ETO?

Standing for ‘equity token’, ETOs are a new form of digital security asset. They represent virtual shares of a company and give the owner shareholder rights. Unlike ICOs, ETOs are completely legal, recognised as official representational digital assets in many jurisdictions.

In order to comply with legislation, ETOs are issued by registered companies, and therefore comply with all relevant know-your-customer (KYC) and anti-money laundering (AML) laws. As such, token holders have exactly the same rights as someone with ‘physical shares’. This includes voting, dividends (if applicable) transfer ownership and more.

The Advantages

There wouldn’t be much point in tokenising shares if the advantages were identical to traditional securities. Liquidity (or lack thereof) can be hugely problematic for pre-listed, private companies. The rise in crowd-funding — both angel syndicate and individual — demonstrates the need for greater access to flexible funding rounds and viable exists.

Issuing digital equity tokens onto a blockchain provides instant access to public market liquidity. Depending on the network (and legislative requirements) consumers are able to purchase, hold and trade their tokens with other global market participants. Liquidity to trade tokens is therefore dramatically increased when compared to traditional models.

This increased access to global markets, whilst remaining an unlisted private company, transforms an organisations ability to flexibly fundraise and manage cash flow projections. Exists (selling private shares) also becomes convenient and straightforward for the shareholder.

The Future

Advantages of the ETO model have not gone unnoticed. On July 2018, Binance, Neufund and Malta Stock Exchange (MSE) announced a partnership to create a ‘regulated and decentralized, global stock exchange for listing and trading tokenized securities alongside crypto-assets.’ They predict that the market cap of equity tokens could reach a staggering $1 trillion by 2020.