Are Security Tokens Bad for Mass Adoption in America, or is it Just the Regulation? — BountyBase
The year 2019 is forecasted to be the year of the security token. Now with many of the security token platforms designated as “Accredited Investor Only,” other Main Street or so called “Non-Accredited investors” will be left out. That has MAJOR implications because non-accredited investors makeup 93% of the American market.
By Andrew Mailen
The Alternative Trading System (ATS) created by tZero, the security token created by Overstock.com, eliminates the need for brokers by matching buyers and sellers in what is known as a dark pool. While the concept in and of itself is stunning, cost saving, and technologically brilliant, it has one major flaw… the regulation.
[Edit* To be fair, it has NOTHING to do with tZero. I just need an example (and hats off to that project, amazing work!)]
Don’t get me wrong, this is not meant to be a diatribe against tZero particularly. The flaw I’m speaking of is actually not about tZero at all but rather a fault of the regulatory landscape’s exclusivity of security tokens that is illustrated by tZero’s offering.
And it’s not even the regulation’s fault, because JOBS ACT exemptions (Reg. A, Reg D).
Why Security Tokens are Currently Bad For Mass Adoption in the USA
To do my due diligence as a writer, I went to tZero’s ATS for a test run. However, upon answering the Accredited Investor questionnaire, when I entered my measly income into the field, I received an error message. The error message told me that I indicated my measly income fell below the required income threshold to be considered “sophisticated” enough to be an accredited investor.
Not again, I thought to myself.
tZero and many other security tokens are designated as being for Accredited Investors only. What does that mean For the rest of us?
How do you become an Accredited Investor?
You need to meet one of the following
- $200,000.00 in annual income, $300,00 for all of the joint-filers in the audience. (No not that type of joint, MedMen);
2. Have an extra One Million Dollars in an account somewhere.
Many smaller investors with less income do not have the money to put this up. There are currently laws in congerss
Since there aren’t any other routes for earning the accredited investor designation, the average Joe with an average salary is out of luck. Sorry, too bad.
Who Benefits Most from All This?
Alternative Trading Systems put the power back into the hands of Wall Street Banks, Big Finance, and the Already Wealthy who are legally forging themselves into the ATS process. I encourage you to check out the latest list of ATS companies who’ve filed with the SEC.
You will notice many of the names in the column entitled, “Names Under Which Business is Conducted,” which include Goldman Sach’s outfit SIGMA X2 and JP Morgan’s JPBX.
What that Means for the Future?
New projects will continue moving down this path because Alternative Trading Systems can be started more quickly and more cheaply than starting an exchange. For example, Regulation D offers a quick path to compliance without the need for a smaller company that is raising funds to register as a security.
Traditional exchanges like Binance and Bittrex can take years to open and cost millions of dollars. Accredited Investors can also save on trading fees by using ATS platforms compared to using exchanges, as it has been found in a study named “Alternative Trading Systems in Europe.”
One potential upside to ATS platforms is that they do not have order books. Institutional investors and the like argue that this creates more market efficiency because moves made by the whales are not seen on a public stage and therefore cannot bring the snowballing effects which have been shown to tilt markets downward (stay calm, just HODL).The future will most definitely be forged by Alternative Trading Systems.
Is Crypto Over for the Average Person?
Sadly, the dawn of these type of offerings has the potential to mark the exit point for smaller investors to enter early funding rounds as they were able to do at the early stages of ICO boom. However, there might be alternative requirements that open up in the coming years, such as an alternative way to prove “sophistication.