For the first time in history in 2019 we will see a bigger issuance of Security Tokens than Utility Tokens. The Security Token future has come in to greater focus, and it’s bigger than anyone thinks. Here’s why.
A.The Smartest People In Finance Are Quitting Wall Street & Devoting Their Life To Crypto
CNBC headlines like “Goldman banker waves goodbye to Wall Street in search of crypto riches” and ”Credit Suisse Banker Known for Preaching Crypto Is Leaving”are becoming increasingly commonplace.
What suggests that Security Tokens are the next big thing is the quality of people dedicating their lives to Crypto and Security Tokens. The big players from the finantial sector are moving in to Crypto. But many see the Crypto Light, and know that the greatest thing about Crypto is how it’s going to make the world a better place for billions for people. This isn’t just a new financial instrument, it’s a movement, driven by a community of brilliant people, infused with a strong sense of purpose. That’s a combination poised to changes the world.
B. People Want Liquidity
The simplest argument for Security Tokens is from the Harbor Whitepaper:
People pay for liquidity. It’s a truism. All else being equal, the more liquidity you give investors, the lower return they require:
With hundreds of trillions of dollars in private assets that could be tokenized, the value that will be unlocked via tokenization over the next decade is in the tens of trillions of dollars.
C. The Security Token Rails Are Being Laid
The mechanics of how Security Tokens are made, traded, custodied, & remain security compliant, are more complex than what meets the eye. That’s why the few STO’s to date have struggled. But that’s all changing in real time. Rails are being built at a furious pace, and are more functional with every passing day.
Firms like Tokensoft, OpenFinance Network, Teknos, Polymath, Verify Investor, Start Engine, tZERO, Templum, Kingdon, Blackmoon, Secutiritze, and Harbor, are just a small fraction of the companies building standardized, interoperable, and scalable Security Token solutions.
D. The Golden Age of Securities Innovation Is Beginning
History is rife with great innovations in finance:
Interest was invented in Mesopotamia in 3000BC, and initially set at 20%.
Paper money was invented in China around 800BC.
The first coins containing gold were struck in Asia Minor, around 600BC.
Mutual funds were invented by the Dutch in 1774 in response to the bailout of the British East India Company.
Mortgaged Backed Securities (MBS), were invented in the U.S., in the 1850s.
Leveraged Buy Outs were invented in the U.S. in 1919 with the LBO of Ford.
Junk Bonds were first issued by Bear Stearns in 1977, quickly followed by 7 issuances by Drexel, which went on to invent the Collateralized Debt Obligation (CDO) in 1987.
For the first time in history, with the digitization of securities, and the use of smart contracts, securities innovation is only limited by our imagination:
A great fintech innovation example is Bancor, an algorithmic market maker, taking friction out of the marketplace, and enabling a breadth of liquidity previously unfathomable.
Early STO’s are simply taking existing securities, and digitizing them, similar to the early days of TV.
As we enter the golden age of security innovation, get ready to have your mind blown and your digital wallet overflowing.
E. Security Token Regulations Have Been In Place For 85 Years
Institutional investors have a fiduciary responsibility, including a Duty of Prudence, which includes ensuring what they’re investing in is legal. That’s why there’s been little institutional investment in utility tokens, as U.S. investors are governed by securities regulations, and utility tokens largely claim to not be securities.
But the five seminal securities laws we’re written 1933-1940. They’ve been amended by Congress many times, including in the JOBS Act of 2012. We might not like the laws, but Security Token investors know what the laws are, and are free to invest, knowing they’re within the letter of the law.
F. Fractional Ownership Will Be Huge
Shares are fractional ownership of a company. NetJets brought us fractional ownership of planes in 1964. While fractional ownership’s not new, tokenized private ownership solves for both the trustless verification of ownership as well as the liquidity of that ownership, ushering in an era of unprecedented growth in fractional ownership. Some areas like art and real estate already have multiple projects underway. But just wait and see what’s next.
The Green Bay Packers first sold stock in 1923 at $5, and last sold shares in 2012 at $250. The shares don’t represent an equity interest, aren’t tradable, and don’t bring season ticket privileges. Shareholders receive voting rights, an invitation to the annual meeting, and a chance to buy exclusive merchandise. They’re Utility Shares! But future sales of sports teams will include ownership rights, because fans want them (over 350,000 fans own Packers shares), and paying for it (Green Bay raised $64 million in 2012). I can’t wait to buy Red Sox shares, sit in Fenway, and watch MY team!
Instead of fractional ownerships of planes, why not fractional ownership of seats on planes? Or songs, movies, TV shows, restaurants, bikes, cars, scooters, mining equipment, and cable channels. Tokenization will allow as its being done will allow for someone to actually own a piece of anything that is for sale.
G. Enhanced transparency Equals Enhanced Value
Leveraging blockchain and smart contracts, information like sales can be public in real time, eliminating the never ending series of one-off disclosures. As more services become distributed ledger based, reporting will evolve from static disclosures to real-time and web based. By definition, all else being equal, companies that are more transparent, will have higher valuations.
In addition, technologies like Zero Knowledge Proof will enable sophisticated privacy features, eliminating one of the major drivers of private blockchains.
H. The Security Token Meetup — It’s All About The Communities
You re already part of our community, the best informed community on the blockchain, The Token Post community.