I’ve long thought stock splits summarise how silly human beings can be.
For the uninitiated, a stock split has no effect on the fundamentals of a stock, merely the “perception” of it. For example, Amazon executed their first stock split since 1999 earlier this week, meaning that instead of an investor holding one share worth $2,340, they instead now own 20 shares worth $117 each, for a total of $2,340.
Nothing changes, but the approach is commonly taken by companies when nominal numbers get large, making the stock appear more affordable and accessible. In Amazon’s case, the share price rose about 2% post-split (although is still down about 10% since announcing the plan three months ago).
There’s a quirk here when it comes to DeFi, however. As a crypto fan who likes to operate on-chain, I’m super interested in tokenised stocks, as I hold stocks as part of my portfolio. The ability to invest in these on-chain offers perks such as greater accessibility (certain jurisdictions make it difficult to purchase stocks), greater trading flexibility (conventional brokers shut trading outside of market hours, whereas the blockchain is open 24/7), as well as the possibility to avoid KYC.
But if you have exposure to a stock via a tokenised asset on-chain, what happens when that stock splits, such as in the case of Amazon?
For ease of explanation, I will use the example of Amazon stock, and DeFiChain – the tokenised asset platform that I interviewed a few months ago. If you are interested in a deeper dive into tokenised stocks, that interview can be read here.
In short, no value changes. Same as in the stock market, anyone previously holding a tokenised Amazon asset (dAMZN), now holds 20 of them, worth the same total value. The process was completed in two stages: first, DeFiChain locked all existing dAMZN tokens, and as the market reopened at the split-adjusted prices, DeFiChain began reflecting the adjusted price. A graphical explanation can be seen below:
It’s another aspect of tokenised stock trading that is smooth and efficient. In this case, it matches the stock market, as brokers will have done the above seamlessly as well. However, the other advantages of tokenised stocks remain – there is simply significantly more freedom, accessibility, and efficiency. The latter holds for both capital management and time – not only is it quicker when circumventing KYC and other regulatory hurdles, but oftentimes the token can be used as collateral, or other more niche uses such as liquidity mining, in the case of DeFiChain.
So, to wrap things up, nothing here has changed with the stock split, in case you were curious.
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