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I am trying to know if it is possible (or already done?) to use NFTs to trade the ownership of shares in physical companies.

I have found articles on medium.com about using NFTs for real estate, but i could not find anything related to stock shareholding (the search engines i tried always return results about NFT-related companies)

If i tried to guess, i would say using NFTs to represent legally owned assets is probably doable, since it was done for real estate, but doing the same for stocks would be legally difficult to implement, and have additionnal challenges regarding things like dividends (which would have to be paid in crypto currencies through smart contracts) and votes.

Alternatively, perhaps smart contracts could be used to implement the mechanics of stock investment natively on the blockchain ?

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    What problem would this actually solve? Blockchain itself is tried or discussed every so often, see ASX.
    – AKdemy
    Jun 26, 2023 at 20:58
  • @AKdemy this would mainly disconnect the ownership of company shares from government recognition, preventing the governments from seizing their assets. Another secondary problem that would be solved is tthe ability to own shares anonymously or from abroad, as well as being able to trade shares outside of the open hours of the stock market. Taken to the extreme, this could also allow companies to exist independently of governments, since their ownership is disconnected from the governments. I am not saying i want this to come true, i just want to know if it has already been done.
    – username
    Jun 27, 2023 at 6:34
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    @username what does "disconnected from government" mean to you?
    – littleadv
    Jun 27, 2023 at 6:35
  • @littleadv I mean that companies would still be able to pay dividends and operate, maybe in another country, even without the legal aspect of a company. However, i understand that this is a very weak possibility, since the legal infrastructure is what allows companies to operate safely and investors to own intangible shares
    – username
    Jun 27, 2023 at 6:39
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    @username, your mistake, both here and in your comments on answers below, is that you assume that because an NFT purports to convey ownership of some off-chain asset, it actually does, but that simply isn't so. Any relationship between on-chain and off-chain assets has to be mediated by some outside entity (e.g. a broker), and that entity will always have to comply with the laws in its jurisdiction. In other words, you own a thing only as long as the society you live in recognizes your ownership of the thing. Blockchains cannot and do not change that.
    – Nobody
    Jun 27, 2023 at 17:44

3 Answers 3

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There's absolutely no problem that it would solve. Ownership of shares in physical companies are already traded electronically and online, and managed through e-records. No-one trades paper certificates anymore, and there are already existing and sufficient systems in place to authenticate trades.

NFTs on the other hand can provide significant drawbacks: how are dividends paid? How are votes counted? How to ensure quick transactions? How to ensure compliance with regulations and reporting? How's fractional ownership represented?

This, like everything else with crypto, is a solution looking for a problem. And, like everything else with crypto, will create much more problems than it could potentially solve.

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  • Thank you for replying. Some of the problems it would solve is the fear that some people have of their governments confiscating their property or freezing their assets, or the ability to trade shares when the share market is closed. I will take this answer as a "no, it does not exist (yet)"
    – username
    Jun 27, 2023 at 6:24
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    @username after hours trading already exists, and nfts won't help one bit against the government threat
    – littleadv
    Jun 27, 2023 at 6:31
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    The U.S. government has been seizing and clawing back crypto for years now; the very blockchain that maintains records of all transactions makes it harder to hide. Jun 27, 2023 at 15:14
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    This would also make insider trading trivial to get away with.
    – JohnFx
    Jun 27, 2023 at 15:28
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    @username if you use NFTs, someone is responsible for the ledger and authentication. It would likely be the company itself, since it wouldn't want someone else to mint its shares and because the current laws (almost?) universally require companies to keep ledgers of their shares. So what would prevent the government from just erasing that ledger and starting a new one the exact same way it does now as part of bankruptcy proceedings or asset seizure? Nothing.
    – littleadv
    Jun 27, 2023 at 15:45
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There is no connection between the Blockchain and the real world beyond the arbitrary conventions that have been set. Those conventions are generally not recognized by law. Owning an NFT means you have been recorded as owning an NFT, just as owning cryptocurrency means you have been recorded as owning cryptocurrency, but neither gives you real-world ownership of anything.

In the case of an NFT there may be a contract which references the NFT;that would be the legal document that would control ownership and that happens under the traditional legal codes.

The NFT adds nothing but a buzzword and a different way of negotiating the contract. The contract, and in sone cases (taxable items, eg) registration of ownership with the appropriate government agency, is what matters.

A Blockchain is a distributed ledger. That is all it is. You can use it to track anything, whether that thing exists or not. It has no legal standing.

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Organizations where "shares" are represented by a blockchain, traded on that blockchain, decisions about the organisation are made through voting on that blockchain and implemented through smart contracts also running on that blockchain do exist. They are called Decentralized Autonomous Organizations (DAOs).

However, I couldn't name a DAO that could actually be described as a "physical company". Most of them are organizations that operate within the NFT / cryptocurrency / DeFi space. Or in other words, groups forming consensus on blockchains regarding assets on other blockchains. And as is tradition in that space, all of that is monetized by having an attached cryptocurrency that can be bought and sold with "real" money through cryptocurrency exchanges.

All of this is a space that is highly experimental. Experimental from the technical, economical, social and legal perspective. The biggest headlines those DAOs made so far were when they spectacularly failed, costing many people a lot of money and nerves. So getting into this field is something I would only recommend to highly adventurous people who are open to experimentation and not afraid of losing their investment... or getting severely frustrated by broken promises.

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