TKEY: The Hybrid Approach of the New Concept

Today’s material is about a new concept, which was approved in December 2021. The team analyzed the user questions; and based on them prepared this material, which allows us to understand the basic principles of the new concept of tokenized shares. We will compare traditional shares with tokenized shares, diverge into details and differences, and demonstrate our hybrid approach, which includes the storage of traditional and tokenized shares of TKEY.

Traditional Market

Stock types

Shares are equity securities that should be treated as a share in a business; when an investor buys a share, it acquires the right to share in the company’s profits; thus, shares are treating as an instrument, income-producing, but returns are considered to be actual since the price of shares is not constant and depends on demand and supply.

The rights and privileges of the investor depend on the type of shares; there are several types of shares common and privileged, each type implies its terms.

Common shares imply the right to vote, which allows the investor to participate in affairs of the company; such shares have an ordinary dividend yield, whereas preferred shares can provide a higher dividend yield, but they do not have the right to vote

The ordinary dividend yield is when the owners of ordinary shares receive the company’s income last, with a high dividend yield, the owners of preferred shares receive income first.

Thus, common shares are most interesting to large investors who need to be able to directly influence the course of affairs in the company; in turn, investors who consider investments as a source of income are interested in preferred shares.

Types of companies

Shares can be issued by both closed joint-stock companies and open ones business structures are also divided into closed corporations, private companies, combined partnerships, and other. In this article, we do not touch on the legislation of a particular country, as we are interested in the details of how the shares will work in the context of tokenization.

In our example, we will use the terms: “private corporation” and “public corporation.”

A private corporation that has issued shares is not publicly trading on any stock markets; for this reason — shares are available to a specific circle of people: company managers, company employees, and others.

The “privacy/closeness” properties of a private corporation give the company greater flexibility compared to public corporations since the management of the company is concentrating on a specific circle of people; and also such a company is free from most of the requirements imposed on public corporations, which allows not to publish information that may be of value to competitors; this, in turn, creates an additional level of business stability.

Transformation into a public corporation in the early stages of development entails difficulties in creating a market for their shares, since institutional investors will show inappropriate interest, and as a result of having a small stock market, in the context of a public corporation, it is more likely to create an object of manipulation of the share price in the early stages of development.

History testifies to different transformations of one company into both a public corporation and a private one. Some company owners shared their experience that the transformation into a public company led to too burdensome problems, as a result of which the financial and other indicators of the company decreased.

An example of the transformation from a public company to a private one is Dell Technologies, which became public in 1998, and in 2013 was transformed into a private one, and then, in 2018, became public again. At the same time, there are large companies that remain private to this day: Mars, Inc; Ernst & Young and others.

An example of the transformation from a public company to a private one is Dell Technologies, which became public in 1998, and in 2013 was transformed into a private one, and then, in 2018, became public again; at the same time, there are large companies that remain private to this day: Mars, Inc; Ernst & Young, and others.

In the context of stocks, the type of business structure can affect both positively and negatively; for this reason, the company’s management needs to make a prudent decision in favor of transformation, and its investors need to objectively assess the company’s position. Thus, the type of business structure is determined by the readiness of the business, and sometimes by direct testing of one type or another.

Tokenized Shares

We have analyzed the types of stocks and companies; it’s time to dive into the topic of tokenized stocks and understand how the processes that are associated with them will proceed.

At the current stage of development, TKEY has chosen the most effective type of business structure, which creates a stable position for it both financially and legally. A private corporation allows us to increase performance, and, as a result, investors and owners of the company can count on profit; while development in the form of a public corporation — there are high risks of declining performance, which would lead to loss of money; in the future, the company is considering the process of conducting an IPO.

Before approving the new concept, we were concerned about the issue of creating a market in the context of a private corporation, because the shares of such a company are not openly trading on stock exchanges. Of course, there are specialized markets, for example, Nasdaq Private Market, but such a market is most interesting to institutional investors and, in turn, implies difficulties for an ordinary investor, for example, bureaucratic difficulties, difficulties in working with such a tool.

Traditional solutions offered to private corporations on the stock market are complicated for private investors to use since investors are currently accustomed to seeing an intuitive interface in the mobile applications of a broker or bank; the use of complex exchange interfaces leads to difficulties in managing their assets, and later to a conflict between the two sides.

Our team analyzed various options and made a decision:

  1. Issue preferred shares for current users.
  2. Launch a platform for users (investors) who can quickly and conveniently buy and sell, and if necessary convert tokenized shares into the company stock.
  3. Provided privileged shares to investors, which implies a return in the form of dividends.

Thus, we have a hybrid system that meets the interests of the company and the needs of users. By hybrid system we mean, the following: 1) open market — a platform where you can buy ownership rights (tokenized share); 2) a private corporation; 3) quick entry into and exit from the market; 4) clear interfaces.

In the context of a traditional system, it would be difficult to create such a model, since the main obstacles are bureaucratic operations, but in the form of tokenized shares, this becomes possible.

TKEY Tokenized Shares

The owner of tokenized shares can:

  1. Sell a tokenized share.
  2. Buy a tokenized share.
  3. Exchange it for a preferred share of the company, which implies the payment of dividends.

The owner of preferred shares can:

  1. Receive income in the form of dividends.
  2. Sell shares through a broker.
  3. In the case of an IPO, get access to the open market (stock exchange).

Supply and demand incentives

It is not possible to buy a preferred share that generates income in the form of dividends, since TKEY is a private company; however, at the expense of the platform, any interested person can buy a tokenized share and then exchange it for a preferred share to receive income in the form of dividends. The platform can be considered as an over-the-counter market, which allows access to the right to the company’s property, in particular, to a part of the profit in the form of dividends.

Any interested person can get access to tokenized shares that can be bought and sold; thus, in addition to the possibility of earning income from dividends, the user can consider additional income due to the difference received from the sale of a tokenized share.

Since the supply is limited both by the number of tokenized shares and the market and provided that the company develops properly, the demand for such shares will grow. It is important to take into account that when exchanging tokenized shares for traditional ones, the number of tokenized shares decreases from the total issue, thereby their value only increases.

Comparison table

It is important to pay attention: to easily understand the difference between the process of owning tokenized shares and preferred shares, let’s look at the table.

Table: Tokenized TKEY Shares and Preferred Shares

As you can see, everything is very simple and clear; as long as you own tokenized shares, you can buy and sell them, thereby benefiting from the difference, while doing it without complicated bureaucratic operations; if you are the owner of preferred shares, then you receive income from them in the form of dividends, but it is difficult to sell them because there is no open market. To sell a traditional stock of a private corporation, there are two options: 1) find a broker and an interested person to buy; 2) wait for the IPO and sell the asset.

Owning tokenized shares implies a market and fast trading, owning preferred shares implies receiving dividends; thus, everyone will find the most convenient strategies for themselves, and the company, in turn, will continue to develop in the corporate market, but at the same time will promote the platform for its popularization.

The meaning of owning both tools is quite obvious, since they complement each other.

In the following materials, we will discuss the topics of tokenization, taxation, legal issues and give recommendations; we will also be happy to receive feedback and questions that have arisen in the process of reading the current material.

With best wishes,
TKEY Team

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