Investments come in different shapes and sizes and sophisticated investors will definitely have heard about fractional shares. Fractional shares simply offer investors an opportunity to own a share of equity, which is less than one full share. The shares of Apple Inc. (NASDAQ:AAPL) are currently selling around $156 per share. Hence, if you want to invest $1000 in Apple, you’ll only get to buy 6 shares of Apple stock because the $64 left over is not enough to purchase a full share. However, with fractional shares, $1000 should ideally buy you 6.41 shares of Apple.
Unfortunately, fractional investing is yet to get a strong foothold on Wall Street despite the obvious benefits it brings to investors and public companies. In fact, most of the fractional share investment offers are often created by brokers who may actually hold the full stock with the company.
Fractional investing eliminates liquidation woes in illiquid assets
Blockchain is already causing massive disruptions across many industries and sectors of the economy. Now, a blockchain startup, Liquid Asset Token (LAT) wants to use blockchain to change the way people invest by simplifying fractional investing. LAT has built a secondary investment marketplace where investors can own illiquid assets such as bank loans, art works, and real estate through the instrumentality of fractional shares.
In the years past, people who own illiquid assets often face huge obstacles when they have reasons to sell their assets. To start with, the big-ticket nature of illiquid assets such as real estate and artworks often cause considerable delays in finding high net worth individuals willing to purchase such assets. Secondly, many illiquid assets can’t be sold directly to buyers, and sellers have to go through brokers or auctions houses that will validate the authenticity and the prevailing market value of such assets.
Thirdly, both the seller and buyers of such illiquid assets often lose money in form of commissions to the brokers who facilitate the deal. Unsurprisingly, many owners of illiquid assets often end up putting their assets up as collateral for loans (cash) because it takes too much work to attempt to sell illiquid assets. Many others even go as far as pawning up their illiquid assets for cash instead of going through the problem of selling such assets.
LAToken to use blockchain to make fractional shares readily accessible
Now, LAToken is a blockchain based marketplace that makes it easier for sellers and buyers of illiquid assets to transact business by tokenizing such assets. The seller of an illiquid asset such as a Picasso or a piece of land can tokenize the asset on LAToken with the total value of the asset. Investors can buy up the tokens to signify their purchase of parts of the asset. The owner gets to raise money by effectively selling off part of the asset without destroying the inherent value of the asset.
The buyers get to buy part of the asset with an amount of money that erstwhile won’t have been enough to purchase ownership. The best part is that the buyer can record gains from such investments because an increase in the market value of the asset automatically leads to an increase in the value of the tokens bought. Hence, LAToken provides a chance to benefit from gains the value of illiquid assets at the fraction of the cost of investing in such assets.
LAT founder and CEO Valentin Preobrazhensky in a press release notes that “LAT unlocks the value of assets by transforming the way money flows between asset owners, borrowers, banks and investors. With the LAT blockchain, assets records are traceable, transactions are registered, and ownership is verifiable. The net result is that previously illiquid assets are now tradable without the expensive and cumbersome securitization processes needed to protect investors. Access to capital for banks, borrowers and asset owners occurs at dramatically lower cost,”