Following the bear market of 2018, cryptocurrency markets are slowly gaining momentum again. However, interest in blockchain technology remains alive and well. So much so, venture capitalists are returning to the crypto markets armed with a new weapon of war: the security token. In simple terms, a security token is a digitized representation of ownership in any type of asset put onto the blockchain. Security tokens are primarily concerned with the ownership of a tangible asset and are purchased based on their potential to appreciate in value, pay dividends, and more. As this ownership provides a measure of stability and value, VC’s can confidently return to crypto trading in 2019 and beyond.
There has been plenty of excitement surrounding the development of security token offerings (STOs) in the past few months. It is predicted that STOs will attract more institutional investors than initial coin offerings (ICOs) ever did. Simultaneously, many new investors will turn to security token markets to gain exposure to securities, bridging the gap between the new and old investor worlds. This, along with the potential of security tokens to modernize various tangible assets, has contributed to bullish market sentiment. The tokenization of assets that takes place with digital securities has many applications- real estate, equities, art and more can be tokenized and their ownership modernized via this method. Security tokens are on their way to outperform ICOs in the next 5 years.
Security Tokens and Globalization
There are numerous benefits to be had from security tokens. For Investors the impact of tokenizing private investments is a game changer because it enhances traditional financial markets through expanding capital flow. Security tokens will also lead to a surge in the supply of investors which will benefit issuers who can now raise funds from institutions under more favorable conditions. Digitized asset ownership has broken down barriers for new investors who would otherwise not have access to this asset class. VC’s can now diversify their portfolios without as much exposure to risk, while companies can expand their investment pools to include new participants. Once secondary markets mature, security tokens will offer new liquidity to investors and give companies access to compliance features.
Reducing Costs and Transaction Times
Security tokens use smart contracts which remove the need for middlemen services, reducing transaction costs and time. Administrative processes like KYC could be automated, adding more speed to token purchase and trading. Tokenization asset ownership has automated many of the above processes, greatly reducing operational costs. Security tokens trading is 24/7, 365 days a year, allowing speculators and investors easier access . Faster settlement times help international transactions, which traditionally can take multiple days to complete. Smart contract technology has reduced these times to be only minutes long.
Tokenizing Assets and Securities
Security tokens are still a new and emerging field, which currently make up a very small portion of the overall securities market.. Areas of great potential for security tokens include tokenized debt, bonds, new types of stable coins and more. For instance, real estate markets across Europe are enjoying a sustained period of above-average returns. Security tokens applied to real estate allows the asset to be traded on licensed token trading platforms, adding liquidity to the asset class.
Security tokens are bringing excitement back to the blockchain space for individual and institutional investors.. Globalizing investment pools, reduced transaction times and operational resources are only a handful of the advantages available to STOs The tokenization of existing securities like stocks, real estate or art will bring transparency, globalization and new liquidity to investors, helping further democratize the alternative asset space.