Everyone’s Talking About Security Tokens But No One’s Trading Them
There's a party taking place right now and everybody's invited. The music's playing, the refrigerator is loaded and the bath tub's loaded with ice. All the components for the sickest soiree ever are ready to rock. There's just one problem: the visitors have yet to get here. Welcome to the world of security tokens, where you can tokenize anything you like, however making it tradable is another matter completely.
STOs Are on the Rise But Liquidity Is Non-Existent
HYGH is a peer-to-peer advertising network and content management system looking to make outdoor display screens cost effective for services of all kinds. It's presently raising funds by means of a token sale, and has elected for an STO over an ICO. Discussing the reasoning, CEO Vincent Mueller said: “We see clear advantages to aligning rewards between the project and its backers, and our company believe a certified STO is the best way to accomplish this.
We've set a small check size of $500, in exchange, investors will get a 9% share of income.” A security token offering was picked, he included, on account of it being the most ethical methods of raising money, helping investors become long-lasting advocates for the business, instead of short-term token flippers, as was held true with the ICOs of yore.
But how long-lasting are we discussing when it concerns trading security tokens? In the U.S., there's usually an one-year lock-up before securitized assets end up being tradable, however that's not to say that STO financiers can leave after 12 months. Offloading any asset requires a counterparty willing to acquire it, and right now recognized investors with the ways and will to buy security tokens on the secondary market are thin on the ground, as are trading platforms themselves, for that matter.
First Comes Infrastructure, Then Liquidity
The Winklevoss twins may have taken flak for Gemini's “Crypto requires guidelines” project, however, when it pertains to securities trading, they're definitely right. While the legal status of utility tokens can be debated ad infinitum, securities will constantly be securities, and hence any project pondering an STO needs to ensure they are au fait with all pertinent policies before continuing. Moreover, any exchange wanting to list these assets needs a license from their securities regulator, which does not dole out such authorizations to simply anybody.
At Token Summit New York recently, Josh Stein, CEO of security token exchange Harbor, had a lot to state about the nature of the nascent industry. “The issue is getting a critical mass of financial investments and investors,” he informed event organizer William Mougayar.
“You can have the best tech in the world, but you still need buyers and sellers willing to transact … It’s like a fission reaction, you gotta reach critical mass.”
Resolving that chicken and egg problem is a job that calls for a multilateral approach involving STO projects, issuance platforms, custody service providers, secondary exchanges, regulators, and all the other intermediaries who govern the intricate security token landscape.
From ICO to STO – With an IEO Pitstop in Between
If 2017's ICO rush was an illegal rave– wild and untamed, hella fun, however eventually unsustainable, then the inbound STO wave is more of a fancy after-party. There's still fun to be had and networking to be done, however, there are bouncers on the door and it's an invite-only affair. In spite of these restrictions, security tokens still have the power to equalize financial investment and unlock innovative brand-new monetary products, much like traditional crypto assets.
“The short-term development is lessening the financier amount,” suggested Harbor's Josh Stein. ” From $500K to $10K. So the short-term effect is to add liquidity and lower check sizes.” When it comes to the long-term, he speculated: “When you have realty bonds, you can leverage them … get increased credit on them using Darma or multi collateral Dai. The innovation today is the liquidity, which quickly leads into smaller units, more investors getting involved.”
In the here and now, the diagnosis on the STO environment is bullish, with a variety of big money deals in between significant market players being inked. In the past week alone, we've seen:
- Rhodium Capital Advisors, lift the lid on a $100M tokenized real estate fund using Harbor’s security token protocol and platform.
- CF Capital Group, a resource mining advisory firm, unveiled a $250M STO using a multi-jurisdictional protocol from Koreconx.
- Polymath team up with Cardano and Ethereum co-founder Charles Hoskinson to create security token blockchain Polymesh.
There are other methods to issue securities, even within the cryptocurrency landscape, than through an STO, it must be noted. Kraken exchange, for example, has started using dividends to financiers, with check sizes as small as $1,000 significantly reducing the barriers to entry.
We are always looking for ways to democratize access to our equity, allowing more of our valued clients to become valued investors. To that end, we partnered with @BankToTheFuture to create an opportunity to invest in Kraken: https://t.co/DZA1nYFPqe
— Kraken Exchange (@krakenfx) May 20, 2019
Josh Stein forecasts a future that will consist of securities which live just onchain, native digital securities. For now, most of the assets being tokenized are standard securities such as property and bonds. Just as it would have been impossible, a decade back, to visualize a number of Bitcoin's present day use cases, it is safe to assume that there will be applications for security tokens we have yet to develop.
In the meantime, for anyone wanting to get their hands on a tokenized security by means of the secondary market, it will be required to wait a while longer. “A year from now you'll start to see the beginning of trading,” ventured Harbor's CEO.
What are your thoughts on STOs – do you think tokenization adds any benefits over traditional securities? Let us know in the comments section below.
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