>> This article is for informational purposes only and is not financial advice. The information does not constitute investment advice or an offer to invest.
Security tokens are steadily being developed to bridge the differing worlds of cryptocurrency and finance. This new fintech aspect of these industries is being made possible by blockchain technology, facilitating the development of new security token applications, and creating new use-cases for physical assets which are compliant with already existent security regulations. By using blockchain as a foundation, securities which are tradable financial assets including equity, debt and more, can become even more effective.
Security tokens have been undergoing infrastructure development despite the naysayers, and 2019 has been pegged as a year focused on further growth for STO’s. Industry experts are also predicting that the remainder of the year will be one of clarifications for STO’s future.
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Below is a breakdown on how security tokens will transform traditional finance and what could be anticipated to come next for this budding industry:
Security Token Benefits
Security tokens have become prominent with fintech enthusiasts due to multiple advantages they offer, such as the fractionalization of real world assets and increased liquidity compared to other asset classes. Security tokens also offer the significant advantages of decreased issuance fees and increased market efficiency.
Security tokens are able to offer these advantages due to being based on blockchain technology, adding transparency, auditability and trust that is key to sound financial systems and processes. This holds great potential for issuers as well, who can gain access to international capital and bigger investor bases. These expansions have already started, with industry players like NASDAQ, JPMorgan and others launching their own equivalent offerings. NASDAQ has in recent times funded a security token platform, while JP Morgan has already launched a digital currency. There has also been considerable infrastructure development for new regulated projects such as Bakkt and the Swiss Digital Exchange, to name a few.
STO’s and the Financial System
The impact of STO’s on the financial system can be huge, as the technology enables options such as immediate settlement that can turn transaction times that previously took days into mere minutes. The first and most impactful change would be in the drastically reduced issuance costs due to the absolvence of previously-essential intermediaries. As these security tokens become a new way to package securities, they can speed up traditionally slower processes like KYC/AML and accredited investor procedures. By streamlining these processes, both issuers and users of financial products can reap the rewards of reduced costs.
The next most impactful change would be in the execution processes, which would also experience a dramatic increase in efficiency. These new processes will aid huge markets around the world in becoming more accessible to investors across all borders, who will be able to benefit from efficient storage methods, higher liquidity and a highly efficient market.
Security Tokens and Tokenization
Tokenization has definitively expanded the market’s ability to develop new and exciting financial offerings. Enabled by blockchain-based innovation growth, these offerings will also transform multiple business and transaction processes.
Many experts predict that security tokens will become the new basis of the digital currency market in the next five years due to these recent advancements. This has been a key factor that led financial regulators to begin working critically on the infrastructure and legal framework developments needed for the market to flourish and continue growing at this pace.
Future of Security Tokens
The security token ecosystem is still developing, but new use-cases are consistently being created. The technology is already paving the way for new methods of capital raising and investing, while still being developed itself. A number of institutional stakeholders are involved in the development of infrastructure that is bridging blockchain tokens like security tokens and traditional finance. A recent study has found that sixty four successful STO’s have been able to raise almost $1 billion driven by five jurisdictions: USA, Switzerland, Germany, UK and Estonia. Of these STO’s, the market has been clearly ruled by the financial sector when it comes to raising, followed by real estate.
Security tokens are predicted to attract hedge funds, private equity and venture capitalists in particular, but will also be attractive to accredited investors.
Security tokens are bridging the differing worlds between cryptocurrency and finance, offering consumers the best of both worlds. Security tokens hold great potential for issuers and token holders, and this potential is contributing to the growth of the technology in the financial sector.
Working hand-in-hand with tokenization, tokens and blockchain-based tech will streamline business and transaction processes. Security tokens are predicted to attract hedge funds, private equity and venture capitalists and more to the market, and modernize the traditional finance industry.
About the Author: Kirill Bensonoff is a serial entrepreneur with multi-million dollar exits in the technology industry. He has focused on building technology focused startups in the fintech, blockchain and enterprise IT verticals. As a graduate from the EO Entrepreneurial Masters at MIT, he has served as both an advisor and angel investor to over 30 different companies. Kirill has been published or quoted in national business and technology media, including Forbes, Inc., Huffington Post, Bitcoin Magazine, CoinTelegraph, The Street, Crowdfund Insider, Investing, Crypto Daily, Cointelligence, and Securities, among many others. Kirill is also the host of The Exchange With KB podcast, a founding member of the Chain Reaction blockchain angel group, and runs the Blockchain+AI investment syndicate.
Disclaimer: Virtual currency is not legal tender, is not backed by the government, and accounts and value balances are not subject to consumer protections. This article is for informational purposes only, and is not financial advice. The information does not constitute investment advice or an offer to invest.
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