What Is a Stock?

01 · Concept — what problem does it solve?

A company that wants to raise money without borrowing it can sell off pieces of itself. Each piece is a share of stock — a unit of ownership that entitles you to a proportional claim on the company's profits and assets, and usually a vote. Buy 1,000 of a company's 1,000,000 shares and you own 0.1% of it. Stocks are the foundational TradFi asset, and the one DeFi tokens are most often (and most misleadingly) compared to.

02 · Mechanics

• Common vs. preferred: common stock carries votes (usually one per share) and a residual claim on profits; preferred stock trades the vote for priority in dividends and bankruptcy — closer to a bond.
• Dividends: discretionary cash payouts of profit to shareholders. Not guaranteed — a company can cut them anytime.
• Market cap: price per share times shares outstanding — the market's price tag for the whole company.
• IPO → secondary market: a company raises cash once, at its Initial Public Offering. After that, shares trade between investors on exchanges (NYSE, Nasdaq); the company gets nothing from those trades.
• Public vs. private: public companies are exchange-listed with disclosure obligations (SEC 10-K, 10-Q filings); private shares don't trade openly.

03 · Formulas

market_cap   = share_price × shares_outstanding
   // e.g. $150 × 10,000,000 = $1.5B

dividend_yield = annual_dividend_per_share / share_price
   // e.g. $4 / $100 = 4%

ownership_% = shares_you_own / total_shares_outstanding

04 · Edge cases & risks

• Last in line: in bankruptcy, common shareholders are paid only after creditors and preferred holders — often that means nothing.
• Price ≠ value: a share price reflects sentiment and expectations, not just fundamentals; it can detach from the underlying business for long stretches.
• Dilution: a company issuing new shares shrinks your slice — the same risk crypto calls "unlocks" and token inflation.
• The crypto trap: most tokens are not legally shares and carry none of these rights. Treating a governance token like equity is a category error — see Crypto vs. Stocks.