On Tokenizing Securities in Contemporary Decentralized Finance Ecosystems

This paper presents a securities tokenization solution allowing real-world securities to benefit from the accessibility, transparency, efficiency, and innovation of blockchain and decentralized finance. While existing solutions limit their scope to specific types of securities, our solution is generalizable to the tokenization of any securities with any holding rights by representing the security by a fungible token and using separate smart contracts for shareholders to redeem the holding rights. Furthermore, unlike existing solutions, our solution addresses the complications regarding ownership accounting that arise from the decentralized nature of liquidity pools, a pivotal component of the decentralized finance ecosystem. Our solution achieves this by performing accounting off-chain with additional logic for liquidity pools. In this paper, we implement our solution on Ethereum, measuring its gas costs to demonstrate that it is 27% cheaper than existing solutions. We also analyse the liquidity logic of over 90% of liquidity pools on Ethereum, confirming their compatibility with our solution. Moreover, we demonstrate the application of our solution for three use cases: dividend-paying stocks, common stock, and mergers and acquisitions.