Resources The different types of tokenized securities, explained
In this section, we explore the different types of securities that can be tokenized today.
In this section, we explore the different types of securities that can be tokenized today.
A bond is an interest-bearing security where an issuer borrows money from investors and usually grants them interest payments and repayment of the capital amount at the end of the term.
A floating rate bond, unlike a fixed rate bond, does not have a fixed interest rate over the entire term.
Fixed-rate bonds, in contrast to floating-rate bonds, are characterised by a permanent fixed interest rate.
A profit bond is a bond with a fixed nominal interest rate and additional profit-related interest based on the success of the issuing company. Investors can benefit from higher returns if the company achieves good business results.
A zero coupon bond, also known as a zero bond, is a fixed-income security where the issuer does not make any ongoing interest payments to investors. Instead, the entire interest amount and the invested capital are only paid out at the end of the term.
The low interest bond is a type of bond that has a lower interest rate (coupon) and is therefore issued below its face value. Investors tend to invest in these bonds for tax reasons.
A subordinated bond is a special type of bond that is serviced only after all other debts in the event of the issuer's insolvency or liquidation. This means that in the event of the company's financial distress, subordinated bond holders will only get their money back after senior debt holders and other creditors.
A Pfandbrief is a bond issued by credit institutions and secured by pledged assets such as real estate or mortgages. There are mortgage Pfandbriefe and public Pfandbriefe, which offer investors a comparatively safe form of investment.
A convertible bond is a financial instrument that, in addition to the right to interest payments and repayments, also grants the right to convert it into a predetermined number of shares in the issuing company. It is thus a combination of a bond and a possible equity participation, which offers the holder the possibility to switch from the bond into equity of the company. In contrast to option bonds, the subscription of shares is not in addition to the bond, but as an alternative. In addition to the ordinary convertible bond, there is also the convertible bond with conversion obligation. This is characterised by the fact that the mandatory conversion at the end of the term is determined by the general contractual conditions.
CAT Bonds (Catastrophe Bonds) are special bonds issued by companies to hedge against the financial impact of natural disasters. Investors bear the risk and receive interest in return, while they could lose some or all of their capital in the event of a disaster.
Option bonds differ from normal bonds by the addition of an option certificate. In addition to the general claim right, bondholders are entitled to the purchase option of certain securities within a certain period and at a fixed price. The option certificates can be used independently from the beginning of the option period.
Shares are portions of the equity capital of a company that can be acquired by investors. A shareholder who owns shares in a company becomes a part-owner of that company and thereby has certain rights and entitlements.
The planned Financing for the Future Act (Zukunftsfinanzierungsgesetz) now includes the possibility of issuing shares electronically. In the case of central register shares, bearer and registered shares can be issued electronically in the future and can thus also be tokenised. In the case of crypto shares, electronic issuance is to be limited to registered shares only. The Financing for the Future Act is to come into force in 2024 at the latest.
Derivatives are financial instruments whose value is derived from one or more underlying assets (underlying). These underlying assets can be, for example, shares, bonds, commodities, currencies or indices. The value of the derivative fluctuates depending on changes in the underlying assets.
Certificates are derivative securities. A certificate is a debt security whose performance depends on the performance of an underlying asset. Legally, this financial instrument is usually a written agreement between an institution (bank, financial institution, etc.) and the respective holder. Certificates can come in various forms, such as bond certificates, share certificates, warrants, index certificates and many more. In contrast to non-securitised derivatives (options and futures), certificates are securitised derivatives.
An option is a financial derivative that gives the holder the right, but not the obligation, to buy or sell a specific asset at a predetermined price (the strike price) within a specified period of time. The assets concerned may be shares, bonds, commodities, foreign exchange or other financial instruments.
Futures are financial derivatives that obligate the buyer or seller to buy or sell a specified amount of an asset at a predetermined price at a future date. These assets can be shares, commodities, foreign exchange or other financial instruments. Unlike options, futures contracts commit the parties to buy or sell the asset at the agreed terms and they cannot terminate the contract early.
In a swap transaction, two parties agree to exchange payment flows such as interest rates over a fixed period of time. Here, too, the aim is to prevent positive or negative price or value developments.
A participation certificate is a security that grants the holder a share in the profits and/or economic success of a company, but does not convey any ownership rights in the company. Unlike shares, profit participation certificates do not certify voting rights in company decisions. They represent a form of equity financing in which the holders can benefit from the success of the company without having the typical rights and obligations of a shareholder.
Various tangible assets and other forms of ownership can be tokenised. These include the tokenisation of real estate, companies, works of art, precious metals, luxury goods (such as watches or jewellery), as well as intellectual property in the form of patents, licences or copyrights.
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