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What Is Equity?

Equity refers to your ownership stake in a business or asset, along with the associated rights and benefits. This typically includes voting rights, dividend entitlements, and claims to a company’s residual value.

Within a company, equity is often represented as “shares.” For example, if a startup issues a total of 1 million shares and you hold 100,000 shares, you own 10% of the company. This grants you the right to vote at shareholder meetings and receive a proportional share of dividends when the company is profitable.

How Does Equity Differ Between Web3 and Traditional Finance?

In traditional finance, equity is defined by corporate and securities law as “ownership,” granting legal rights to residual assets and dividends. In Web3, however, most tokens confer “utility” or “governance” rights rather than company ownership—unless they are classified as security tokens.

Most tokens purchased on exchanges represent rights to use a network or participate in community governance, not equity in the issuing company. Only under regulated Security Token Offering (STO) frameworks can tokens legally represent equity or profit-sharing rights.

How Is Equity Created and Recorded?

Equity originates from a company’s formation and the issuance of shares, recorded in shareholder registries or electronic systems. Public companies list on exchanges, with ownership records maintained by clearinghouses and custodians.

In Web3 scenarios, if assets are tokenized (such as Real World Assets, or RWA), equity or income rights may be represented as tokens and recorded on-chain. However, whether these are legally equivalent to traditional equity depends on regulatory compliance and offering documentation.

How Does Equity Provide Income and Rights?

Common rights and benefits of equity include:

• Voting Rights: The ability to vote on major matters (e.g., mergers, board elections).
• Dividend Rights: Receiving cash or stock dividends proportional to your shareholding when the company is profitable.
• Residual Value Claims: The right to claim remaining assets after debt repayment if the company is liquidated (typically subordinate to creditors).

Equity can also deliver capital gains. If the company performs well and its stock price rises, investors can sell their shares for a profit.

How Is Equity Reflected in the Token World?

In the token economy, “token rights” generally fall into two categories:

• Governance Tokens: Used for voting on protocol or community decisions—akin to influencing project rules—but typically do not represent equity ownership.
• Utility Tokens: Used for paying fees, staking, or unlocking services; these confer usage rights rather than ownership.

Security Tokens (STOs) are issued under compliant frameworks, representing equity or profit-sharing rights in tokenized form. Legally, these more closely resemble traditional equity. As of the second half of 2024, multiple jurisdictions are exploring RWA tokenization and STO pilots, with regulations gradually improving but maintaining strict cross-border compliance requirements.

When participating in offerings such as Gate’s Startup section, you will see information about token utility, distribution, and risk disclosures. Importantly: Startup tokens generally do not promise equity or dividends; instead, they focus on usage or governance within the project.

How Do You Invest in Equity?

To invest in equity, it’s essential to distinguish between “stocks/private equity” and “token rights,” as well as their respective channels and compliance pathways.

Step 1: Define Your Objective. Decide whether you want to invest in corporate equity (public stocks or private placements) or participate in token-based governance or income scenarios (such as staking, airdrops, or node rewards).

Step 2: Choose Your Channel. Public equity investments are made via licensed brokers and securities exchanges; private equity requires qualifying as an accredited investor and signing legal agreements. Token rights can be acquired through regulated exchanges or directly from project teams. On Gate, you can explore Startup projects or participate in Earn strategies for on-chain income—these do not equate to company equity.

Step 3: Review Documentation. For stocks, examine prospectuses and financial statements; for private equity, review shareholder agreements and valuation terms; for tokens, study the white paper, tokenomics, and risk disclosures—confirm there is no implied equity promise.

Step 4: Risk Management & Compliance. Verify regulatory requirements and suitability assessments; set position limits, stop-losses, and diversify funds. For token participation, watch for smart contract risks and platform vulnerabilities—do not mistake token rights for actual equity.

Step 5: Ongoing Monitoring. For equity, monitor corporate governance and profitability; for tokens, track protocol revenues, user activity, and governance participation. Regularly reassess whether your investment rationale remains valid.

What Are the Differences and Common Misconceptions Between Equity and Token Rights?

The key differences lie in legal status and scope of rights. Equity represents company ownership and statutory entitlements; token rights are usually tied to protocol or community governance and usage—not automatically granting dividends or residual asset claims.

Common misconceptions include:

• Mistaking governance voting for shareholder voting. Governance votes typically concern protocol parameters—not company mergers or board appointments.
• Confusing staking rewards with legal dividends. Staking yields come from protocol mechanisms—not profit distributions.
• Assuming token holders can claim company assets. Unless tokens are issued as compliant STOs with explicit legal provisions, they lack traditional equity’s liquidation priority and asset claims.

What Are the Risks of Equity?

Major risks associated with equity include:

• Business Risk: Company earnings may fall short of expectations, leading to lower share prices or valuations.
• Dilution Risk: Issuing additional shares can dilute your ownership percentage and voting power—pay attention to pre-emptive rights clauses.
• Liquidity Risk: Private equity typically involves long lock-up periods and limited exit options.
• Legal & Compliance Risk: Cross-border investments face diverse regulatory frameworks—contract terms and suitability assessments must not be overlooked.

Token rights also present unique risks:

• Protocol risks and smart contract vulnerabilities.
• Platform risk and fund security—always enable security features, beware of phishing links, and protect your accounts from theft.
• Price volatility and unstable liquidity—strategy returns may not be guaranteed.

What Are the Future Trends for Equity?

As of late 2024, the EU’s MiCA regulation is being phased in, clarifying oversight for security tokens and stablecoins. Regions like Hong Kong are piloting tokenized assets under compliant frameworks. The intersection of traditional equity and blockchain lies in RWA tokenization and STOs—using on-chain accounting and programmatic distribution to improve transparency and settlement efficiency. However, cross-border compliance, investor protection, and secondary market liquidity remain significant challenges.

Institutions are experimenting with tokenizing bonds, fund units, or payment rights; more compliant tokenized equity products may emerge in the future. For individual investors, compliance verification, document review, and channel selection will become increasingly important.

How Can Equity Be Summed Up in One Sentence?

Equity combines “ownership share + legal rights,” determining your entitlement to vote, receive dividends, and claim residual value; in Web3, most tokens only grant usage or governance rights—except for compliant STOs—and do not equal company equity. Understanding these boundaries and compliance pathways is key for sound investing and risk management.

FAQ

Are Shareholder Equity and Equity the Same Thing?

Not exactly. Equity refers to your ownership share in a company—the portion you actually own; shareholder equity is an accounting concept indicating the residual value after subtracting liabilities from assets. Simply put: equity is “how much you own,” while shareholder equity is “how much your ownership is worth.” They are closely related but focus on different aspects.

What Rights Do Ordinary Investors Get After Buying Stocks?

When you buy publicly listed stocks, you acquire company equity. This grants you dividend rights (profit sharing), voting rights (participation in major decisions), and residual asset distribution (a proportional claim on assets if the company is liquidated). In practice, most retail investors mainly focus on stock price changes and dividend income.

Why Is the Equity Multiplier Important in Financial Analysis?

The equity multiplier measures a company’s financial leverage—the extent to which debt is used to boost assets. A higher multiplier indicates greater debt usage and higher risk but also greater potential returns; a lower multiplier suggests conservative financial management. Typically an equity multiplier between 2–3 is reasonable; above 5 signals elevated financial risk.

How Is the Formula Assets = Liabilities + Equity Used in Real Life?

This is a fundamental accounting equation. Take a house as an example: your house (asset) is worth $1 million; if you have a $300,000 mortgage (liability), then the remaining $700,000 is your true ownership stake (equity). The formula shows that every asset consists of creditor money plus your own money—the owner’s equity is what’s left after debts are subtracted from assets.

Does Buying a Project’s Token in Web3 Grant You Equity?

Not necessarily. Buying tokens does not automatically mean you gain project equity. Some tokens represent project rights (such as governance tokens) that let holders participate in decisions or profit sharing; but most tradable tokens simply function as digital assets without conferring ownership of the project itself. Always clarify the specific utility and entitlements of any token before purchase to avoid confusion between token rights and actual equity.