“10% of the world GDP will be built on Blockchain Application by 2025.”
— Deloitte 2018
What is the Next Megatrend causing a Buzz in the Market?
It is the most lucrative token on the blockchain, namely the security token! With the arrival of the security token offering (STO), the crypto space is beginning to reach an unexplored level of legitimacy in the financial community. We are about to witness perhaps even more disruption in markets and society than ever experienced before!
Prior to security tokens, the following trends emerged in the blockchain revolution:
What are Security Tokens?
To understand what security tokens are, it is critical to understand the meaning of securities.
Securities are tradable financial assets such as bonds, debentures, notes, options, shares (stocks), and warrants. And if we take the example of stocks, you might understand that it is a way to own a part in a company. Companies and governments use this method to raise money from capital markets from various investors. And then these investors are promised some sort of return on investment in the form of dividends, interests or shares. With these traditional forms of securities, liquidity always has been the biggest challenge for the investor.
Security tokens are units of ownership in a tradeable asset managed by the blockchain. Security tokens pay dividends, share profits, pay interest or invest in other tokens or assets to generate profits for the token holders. In fact, all kinds of assets can be tokenized into security tokens! This takes care of the liquidity challenges experienced before. Imagine, your dividends being paid to you on a specific date upon meeting a certain condition via a smart contract!
A security token is actually NOT revolutionary! It is rather an evolution from the current state of securities. It empowers fractional ownership, increases liquidity, breaks capital controls and creates a truly free market.
There is sufficient demand for security tokens because regulations in their respective jurisdictions govern them. For example, in the US the Howey Test determines whether a token is a security token or not and whether it is subjected to certain disclosure and registration requirements.
A security token comprises of all four of the following elements:
Why is the Market Bullish about Security Tokens?
The market is bullish due to the unlimited use cases of security tokens. Security token trading is more cost-effective, secure and fast. Big bankers and institutional investors are betting high on its prospects. The regulation of security tokens brings more trust and support from investors as they realise the tremendous opportunity in this space. And this of course, brings more and more liquidity to the securities market.
A Whole New Infrastructure is Inevitable
A whole new infrastructure for security tokens is unavoidable because the old traditional model is outdated. Security tokens need the following new infrastructure:
Final Thoughts
Forward-thinkers will have the cheapest capital, the most liquidity and the largest number of potential opportunities to evaluate.
The next 30 years will belong to the financial institutions and individuals who move with ruthless conviction to dominate the security token landscape!
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