Security Tokens Ecosystem in 2018: A Research by BlockShow

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2017 was the year of initial coin offerings (ICOs) — startups raised over $6.6 billion through ICOs and that figure doesn’t include EOS. EOS had a year-long ICO that was completed in 2018 and raised over $4 billion, making it the largest ICO to-date. And there’s still the question of how to count Telegram’s $1.7 billion private token sale.

But more recently, the crypto economy has entered a bear market and the number of coin offerings happening each month has decreased dramatically. The focus of the community has shifted to less advertised but arguably more fundamental projects. These are often led by experienced founders with a clear vision, and they tend to raise funds through private token offerings — and often security token offerings (STOs).

While the utility tokens of past projects mostly act as the fuel that you use to access their services, a security token represents an actual security, as defined by local regulators. In the U.S., the Security and Exchange Commission utilizes the Howey Test for this distinction. Securities represent assets, such as equity in a company or the underlying asset it’s backed with, often with an expectation of future profit or dividend distribution among holders. 2018 is considered by some experts to be the defining year for security tokens. We will further explore why.

Until recently, Asia had not seen a lot of security token activity. For instance, the Monetary Authority of Singapore (MAS), the city state’s de-facto central bank, highlighted in September that no tokens representing securities have been approved to-date. Considering the fact that projects in that area have enjoyed tremendous success in the U.S. and Europe, we expect that Asia, one of the largest cryptocurrency hubs in the world, will catch up. In 2017, Singapore alone trailing only the U.S. and Switzerland in the number of ICO projects.

Security tokens have the potential to bring the classic fiat and crypto economies much closer together. They also let crypto investors transfer part of their capital into the assets backed by the off-chain securities and commodity goods, which diversifies their portfolios and mitigates risk. At the same time, they allow financial institutions to safely enter the cryptocurrency world and transfer their capital into digital assets.

One of the key drivers of this ecosystem are stablecoins — tokens that are pegged to the U.S. dollar or some other currency or asset in order to support their market rate and avoid the volatility that has been inherent to cryptocurrencies. Stablecoins also enable smart contracts based around figures and payments in fiat currencies, which seems much more reasonable from a business perspective. Businesses can safely move their business logic onto the blockchain and enjoy transparency while their customers feel safer dealing with known concepts.

We believe the security tokens ecosystem has reached a critical level. The combination of developments in infrastructure platforms; first-mover examples of companies that raise funding by issuing security tokens; and the emergence of new, trustworthy stablecoins finally enables a much deeper intersection of the off-chain and crypto economies. Thus, new projects to be built on top of them.

What Are Security Tokens?

Once again, security tokens are cryptographic tokens that represent a security as defined by the local regulations. In the U.S., these are is regulated by the Security and Exchange Commission (SEC).

In order to determine if a particular investment can be considered a security under the Securities Act of 1933 and the Securities Exchange Act of 1934 — and therefore subject to certain disclosure and registration requirements — the SEC applies the so-called Howey Test created by the Supreme Court.

Under the Howey Test, a transaction is an investment contract if:

It is an investment of money.
There is an expectation of profits from the investment.
The investment of money is in a common enterprise.
Any profit comes from the efforts of a promoter or third party.

Although the Howey Test uses the term “money,” it includes investments of assets other than money. The term “common enterprise” isn’t precisely defined. Most courts define a common enterprise as one that is horizontal, meaning that investors pool their money or assets together to invest in a project. However, there are other definitions.

Main Applications

Security tokens enable new possibilities for blockchain-based projects and the classic financial industry. Most existing applications fall into two categories listed below.

First, they allow corporations to issue their stock in the form of security tokens that are recorded on the blockchain. These tokens represent a security and the corporation either has to either file an S-1 form in the U.S. or rely on an exemption (e.g. Reg A, Reg D) that would likely limit their marketing audience. For instance, Reg D prohibits general solicitation and allows only accredited investors to participate.

Secondly, security tokens can represent an off-chain financial asset or security. The companies and financial institutions can use it to tokenize their assets, such as debts, real-estate funds and mutual funds, marketable commoditized goods, etc.

Infrastructure Layer

The most notable projects connected with STOS are ones forming the infrastructure layer for this sub-sector. They act as platforms for third parties to use to launch their STOs and tokenize real-world assets by launching digital securities backed by them.

The infrastructure layer is mostly in its early days and still developing product offering but they will become the backbone of the security token ecosystem in the near future.


Polymath positions itself as the interface between financial securities and the blockchain, and as the Ethereum for security tokens. It even has its own ST-20 token standard and native smart contracts. Polymath has its own native token, i.e., POLY, which is used as an economic unit for all the operations on the Polymath blockchain. The company raised $58 million and is registered in Barbados.


Harbor is reengineering private securities with blockchain technology to help usher in a new wave of tokenized securities backed by real-world assets, such as real estate, company equity, investment funds, and fine art. The Harbor platform, powered by its compliance protocol, is the first to ensure tokenized securities comply with existing securities laws on every trade across the globe. The company raised $38 million and is based in the U.S.


TrustToken is a platform to create asset-backed tokens that you can easily buy and sell around the world, including gold-to-gold and dollar-to-dollar tokens. The company’s first asset token is TrueUSD, a stablecoin that you can redeem 1-for-1 for U.S. dollars. TrustToken was founded in 2017 and consists of a team from Stanford, UC Berkeley, Airbnb, Goldman Sachs, PayPal, and Google. The company raised $21 million.


Swarm Fund is the blockchain for private equity. It’s a fully decentralized capital marketplace that democratizes investing. Using the power of the blockchain, it opens up high-return, alternative investment classes to smaller investors through asset-backed funds using cryptocurrency tokens. It makes traditionally exclusive investment opportunities, such as private equity and hedge funds, inclusive for the Swarm by pooling together smaller investments into larger, institutional-sized blocks.

The Swarm blockchain allows real-world objects to be “tokenized” using the SRC20 protocol, a cryptographic standard for security tokens, and a world first. Tokenized objects become “assets” that can be easily managed, governed, and traded. Swarm is built on TokenD and the Stellar blockchain. The company was founded in 2014.


tZERO’s blockchain technologies aim to revolutionize the market and fix the inherent inefficiencies of Wall Street so financial processes are less beholden to traditional, institutional market structures.

OpenFinance Network

OpenFinance Network is a trading platform for tokenized securities. Their goal is to bring efficiency, transparency, and interoperability to a fragmented marketplace. They work with multiple companies in this list as well.


Securitize is an issuance platform for asset-backed security tokens on the blockchain. It has a built-in global regulatory compliance coded into the DS and protocol levels. It provides specialized tools for both investors and issuers. The Securitize platform allows users to manage their digital securities from one convenient dashboard.


Securrency delivers financial technology products for the tokenized issuance and trading of securities. It makes financial services more secure, transparent, efficient, and accessible by integrating legacy financial services with recent advances in distributed ledger technologies, payment gateways, and security frameworks. Built from the ground up with security and compliance at its core, Securrency enables an efficient market, bringing together investors seeking yield with value creators, such as asset owners, startups or fund managers requiring capital. The company was founded in 2015.


Republic Crypto lets investors participate in democratized blockchain investing through its legal token distribution platform.


TokenSoft’s SaaS sale platform enables clients to launch blockchain-based securities and token sales under U.S. Reg D, Re S, Reg A+, and other security sale formats in over 50 international jurisdictions. Similar to sales, tokens and securities distributions on the blockchain may be subject to the complex Bank Secrecy Act or tax considerations. Whether it’s a faucet, a token swap or something in-between, TokenSoft helps clients distribute their blockchain-based currencies or securities in a compliant manner.

Atomic Capital

Atomic Capital is a venture-backed and FINRA-licensed technology company that helps clients raise capital through the issuance of programmable securities. We provide the core technology, global relationships, and industry experience to move an idea to execution.

Security Offerings

The number of security token offerings is certainly much smaller than the number of ICOs that use utility tokens. There are a few reasons for that:

  • Regulatory uncertainty
    The ecosystem of security tokens is in its early stage and there is a certain lack of legal practices. In 2017, the media was filled with news of SEC issuing requests for information to hundreds of ICO projects in order to learn more about their operations and potential violations of the security laws. Even the Howey Test is not a panacea, as certain definitions in it are not very explicit, creating further misunderstanding. Only a very limited amount of public security token offerings have taken place compared to the number of utility token offerings but we expect the landscape will change significantly in 2019.
  • Less access to the capital
    Limitations imposed by local regulators largely prohibit the general audience from investing in securities and therefore limit the potential capital that can be captured by the projects using security tokens.

Most of the projects listed can be divided into the following categories:

  • Securitized Investment Entity
  • Real Estate Investment
  • Tokenized Equity or an Equity-like Profit Sharing

The biggest problem these structures are trying to solve is the illiquidity of most investment vehicles, including venture capital and private equity funds, real estate funds, etc. Once investors get in it’s very hard for them to liquidate their investment before a certain expiration date, as the secondary market is extremely small and undeveloped. Security token mechanics and smart contracts also simplify the capital distributions and make the payouts process more direct and transparent.

As a result, security tokens have the potential to attract additional capital from new investors who previously haven’t been interested in this kind of investment.

In 1997, during the dot-com boom, there were 8,884 companies listed on U.S. exchanges, primarily on Nasdaq and the New York Stock Exchange. Since then, the number has been cut by more than half. The number of IPOs is declining, and that could mean that small investors are getting shut out of the most lucrative deals.

The security tokens ecosystem could lead to the emergence of a new equity ecosystem separate from the public stock exchange. This is especially true thanks to recent changes in U.S. security laws — specifically the updated Reg A exemption that allows for the advertisement of private placement even to a general audience (although with added limitations on the rise).

Besides, more and more blockchain-powered companies raise funding from their investors via the SAFT or SAFE-T agreements — a modified version of the SAFE (Simple Agreement for Future Equity) created by YCombinator to simplify raising money for early-stage companies. SAFT initially has been developed by Coinlist and allows companies to raise money and issue tokens to investors after the network is launched.

Bcap (Blockchain Capital)

Blockchain Capital is a pioneer venture capital firm investing in the blockchain. It was launched by Brock Pierce, Bart Stephens, and Bradford Stephens. The ICO they performed under the brand of Bcap is believed to be the first company to introduce a public offering for a securitized token. The firm has invested in more than 50 companies in the last 4 years, investing alongside Silicon Valley’s leading venture capital firms. They are a sector-specific, but multi-stage VC firm that seeks to gain diverse exposure to the blockchain economy while offering unique co-investment opportunities and proprietary deal flow. Blockchain Capital has built an unrivaled network of entrepreneurs, advisors, and limited partners who are on the front lines of this fast-moving sector of fintech. is the ultimate destination for all things lottery. It provides instant results, tracks jackpot sizes, follows the latest lottery news, and allows people to play the real Powerball and Mega Millions games right from a mobile phone. The company’s private token sale is about to be completed, and presumably, this STO could be in the nine-figure range. The investors in this security token will receive financial yields depending on the gross raffle sales.

Slice Real Estate

Slice RE enables a new class of real estate investments. It allows individual investors to gain access to institutional-grade real estate in prime markets and enjoy public-market liquidity with private-market returns. Real estate investing platforms restrict investments to accredited investors only, and Real Estate Investment Trust (REIT) funds have high fees and require investors to have access to stock-trading accounts. Slice is the only real estate platform that offers fractional ownership in US commercial real estate (CRE) in prime US cities, lie as Los Angeles, New York City, Boston, and San Francisco.


Moonlighting is an STO raising funds under Regs D & S. Moonlighting is an online employment marketplace for freelancers. It has been live since its 2014 alpha/beta and 2015 full launch. The platform now has 650,000+ freelancers. Moonlighting has raised over $6 million in equity financing from investors like media giants Gannett, Tronc, and McClatchy. For STO it is selling Simple Agreements for Future Equity with Token Allocation (SAFE-Ts).


SPiCE is the first fully compliant liquid venture capital fund. SPiCE VC has issued regulation-compliant security tokens that entitle holders to exit revenues. SPiCE tokens are supposed to be liquid and tradable from the start. Traditionally the investments in VC funds are illiquid. Token holders in the SPiCE not only get a piece of the capital gains but also own it as a tradable asset.


Sia launched as a fully functioning decentralized storage platform in 2015 with two digital assets. The first is the siacoin token, which is the only way to rent storage on the Sia network. The second is the siafund token, a digital asset that entitles the holder to a portion of the siacoins exchanged each time a filed contract is created on the Sia network. Nebulous, Inc. is offering 750 Siafunds to qualified investors in an auction opening on April 16, 2019.

22X Fund

22X Fund is a tokenized fund formed by a group of entrepreneurs from a recent group of 500 startups. It gives qualified investors exposure to equity in up to 30 global startups — all alumni of the 500 Startups Global Seed Accelerator program. In connection with this issuance, 22X is seeking to turn venture capital on its head by pre-selecting a diverse group of companies that are expected to be fast-growth. It provides investors with an opportunity to indirectly invest in these companies without paying the high minimums and large fees associated with venture capital investment, simply by purchasing 22X Tokens.


Property Coin is a blockchain-based token that is backed by a diversified and professionally managed portfolio of real estate. Aperture, the company behind the STO, rides on a 100% asset-backed token to open up real estate. Aperture intends to raise over $50 million through the STO. The funds will be invested in two areas of business, namely, loaning other property investors and flipping residential properties. Half of the profits will be shared with the token holders through reinvestments.


SwissRealCoin is Switzerland’s first real estate-backed crypto token. SRC enables easy access to Swiss real estate value for investors, provides much more liquidity, and is far more transparent than direct real estate investments or classic real estate funds. The proceeds of the SRC ICO will be invested in Swiss commercial real estate assets and be used for the development of the IP. Due to its asset-backed nature, the market price of the token should be independent of the volatility of the market. The SRC was initiated by a team of real estate and tech professionals in Zug, Switzerland.


2018 has been considered by many experts in the field as the year of stablecoins. The industry that started with Tether moved to all kinds of stablecoins, Just recently Coinbase and Circle have adopted USDC as a native US-pegged token enabling the further adoption of the crypto.

The main advantage of stablecoins is that they offer stability and can act as a safe haven against the volatility of the cryptocurrencies. It allows cryptoinvestors and crypto funds to diversify their portfolios, while also making classic financial institutions feel safer working with crypto.

But the main differentiator of cryptocurrencies that we have yet to acknowledge is their underlying opportunity to be used in contracts built around real-world assets and goods. One of the main points of criticism for multiple ICOs was the fact that their products didn’t require their own token and could use ether (or EOS, etc.) instead. In the real world, people are used to operating in fiat currencies and if we want to move the business logic onto the blockchain we need a token that can represent actual prices — and stablecoins can do just that. With the influx of more trusted solutions, we can reasonably expect that more and more projects will be built around stablecoins in the very near future.

There are a few ways to create a stablecoin on the blockchain:

  1. Collateral-backed tokens
  • Fiat-backed tokens
  • Asset-backed tokens

2. Algorithmic tokens

One of the biggest issues with fiat being collateralized is that users have to trust the central entity that holds the fiat reserves. The main benefit of this sort of architecture for a stablecoin is the price stability. Yet the community loses the main advantages of decentralization and the structure might raise serious concerns as in the case of Tether.

Asset-backed tokens are considered to be stablecoins due to their innate value; for instance, tokens backed by commodity goods depend on the price of those goods likely not going to zero, but they can’t be completely stable as the market rate is still prone to change.

The alternative is to set up a stablecoin whose market rate will be regulated by the protocol itself. In that case, the smart contracts and sometimes the incentivized participants of the network will affect the supply and demand of the available tokens and fix the price around a predetermined amount. This amount could be arbitrary or just pegged to the U.S. dollar or another fiat currency. This particular approach carries the advantages of decentralization and doesn’t require the trust of the main issuing entity but could be prone to the attacks that affect the price of the stablecoin.

It is worth noting that all the primary stablecoins used by exchanges and services (Tether, TrueUSD, USDC) are directly or indirectly backed by the U.S. dollar.


Tether is a token backed by actual fiat currency assets, including USD, Euros and, soon, Japanese Yen. One Tether equals one underlying unit of the currency backing it, e.g., the U.S. Dollar, and is supposed to back 100% by actual assets in the Tether platform’s reserve account. Being anchored or “tethered” to real-world currency, Tether provides protection from the volatility of cryptocurrencies.

Tether was the first dollar-pegged stablecoin and is the most well-known in the industry. It has faced a lot of criticism, though, as the company operating it was connected to the BitFinex exchange and failed to reliably confirm that it did indeed have enough assets to back the amount of Tether currently available.


Circle and the CENTRE open source consortium introduced a service to tokenize U.S. dollars and use those dollars over public blockchains on the internet through the USD coin or USDC. USDC is the first of several fiat tokens CENTRE expects to deliver, and Circle is the first of several forthcoming CENTRE members to launch USDC issuance.

The token is natively supported by Coinbase as well; its customers can convert fiat USD into USDC instantly with no fees.


TrueUSD is a stablecoin backed by the U.S. dollar, acting as a stable currency for digital exchange. Every TrueUSD is claimed to be 100% collateralized by USD, held in professional trust firms’ banks. Anyone who passes a standard KYC/AML check can redeem TrueUSD for USD.


Havven is seeking to provide a decentralized and scalable solution to price volatility. nUSD, which is pegged to the U.S. Dollar, is the first nomin, the stablecoin in the Havven system. Havven plans to release nomins for a variety of global currencies by the end of 2018, including nEUR, nAUD, nJPY, and nGBP. Havven’s dual-token design enables a stable solution that is decentralized, asset-backed, and on-chain. Nomins are backed by the value of the collateral token in the Havven system, havvens. The value of havvens comes from small fees that are generated by all nomin transactions, which rewards havven holders for staking the system. The value of nomins is kept stable by havven holders, who are incentivized to control the supply with the proportion of fees they will receive.


Maker Dai is a stablecoin implemented as an ERC20 token on the Ethereum blockchain. Designed to maintain 1:1 parity with the U.S. Dollar, its value is backed by collateral (ether in Dai 1.0) which is locked up in a smart contract, the Maker collateral vault. Maker keeps Dai at $1 using a system of collateral and price feeds. This collateral is carefully managed by the MKR token holders.


Basis is a stable cryptocurrency protocol with an algorithmic central bank designed to remove volatility. Basis coins aren’t directly backed by fiat or any other asset. Instead, the Basis blockchain attempts to adjust the supply of Basis coins over time to maintain a peg to the dollar, much as foreign central banks expand and contract their own money supplies to maintain a stable currency value.

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