It’s time to talk about the endless possibilities of digital securities/STOs.
The cryptocurrency industry experienced a great deal of turmoil in 2022, with highly anticipated projects collapsing in quick succession. Exchanges were overlooked due to chronic malpractice and then quickly went out of business, exposing the horror to everyone who had invested in and supported them.
Along with numerous painful investment losses, the market capitalization of the entire crypto market fell back to less than $1 trillion.
Fortunately, we were able to see through the fog all the way to the star that was twinkling in the distance.
We strongly believe that the future of the crypto world will be surrounded by 4 keywords: Compliance, Tokenization, User capital, and Social finance. And it all started with the madness and bust of ICOs in 2017, and the birth of a new concept in the ruins-STO: compliant Token issuance and trading under the regulation of each country.
Since the start of 2018, we and our partners have been on a challenging and fun journey, and it has been gratifying to see that through the continued efforts of regulators and users from around the world, STOs have grown and evolved from a small corner and are rapidly being accepted and embraced by national regulators. Even in an environment where the crypto market continues to be plagued by bad news in 2022, the STO market has grown by an impressive 14x in value.
STO is not just a digitalization and tokenization of the securities industry or a compliant ICO, but rather a change in the business model, a change in the relationship between investors and participants, and a change in the traditional way of distributing benefits. It allows every participant, contributor, and stakeholder to enjoy the value created by innovative projects, and more importantly, this value can be legally protected, especially for project founders as well as investors.
We partnered with the industry leaders and at the same time we invested in INX, the US-based digital securities exchange that pioneered digital securities and whose tokens became the world’s first SEC-registered digital securities IPO issued on a public blockchain, which now enables founding teams that are innovative and embrace the idea of compliance to issue and raise capital by providing them with a nose-to-tail solution, including a licensing umbrella, technology, marketing, compliance/ KYC services, and more — Token as a Service.
For investors familiar with the crypto market, its business model is that of a US-compliant crypto asset exchange issuing a platform coin (like BNB), but what is remarkable is that this is the first token in the world to be registered and issued under US securities laws, under the issuance guidelines of an IPO. The process took 950 days, yes almost three years, and countless communications for the SEC to understand the potential of crypto trading and the possibility of full compliance. While some crypto projects still complain about the lack of adequate guidance from regulators, the first movers have provided an unprecedented success story. Such examples have occurred over the past two years, and have truly inspired practitioners of compliant digital asset issuance.
To drive the adoption of STO, we are also working with a number of like-minded customers.
Trucpal — a SaaS platform for freight logistics from China — is the first STO offering to comply with the legal framework of the US, China and BVI. Lawyers from all three regions have creatively accomplished many impossible tasks for this purpose. Also, it is because of the new business model traction based on Token that Trucpal’s business continues to outperform its competitors and become the first STO to achieve dividend distribution.
Hashrate Asset Group (HAG) — the world’s first compliant Bitcoin hashpower-backed security token. Bitcoins generated based on fixed “perpetual” hashrate will be distributed directly to investors, all under the framework of U.S. securities law regulation, which provides investors with full protection and transparency, making it possible for ordinary people to participate in bitcoin mining in a financially compliant manner.
W23lab(US）-VolaFi — The world’s first STO on the DeFi derivatives protocol and ecosystem, DeFi has unparalleled innovation and its unique model has made a giant in the crypto world, with a code-based and fully transparent financial model that disrupts the infrastructure and limitations of traditional finance regarding trading, collateral, and derivatives. W23lab, the leading crypto financial lab focusing on research and building Volatility derivatives strategies and infrastructure with a team from Bridgewater Fund, Federal Reserve and JP Morgen, will take a fully compliant approach to STO issuance, distributing the proceeds earned based on DeFi directly and transparently to investors.
BlockPillars (Australia/Dubai) — Zero-Knowledge Proof-(ZKP）based VPU and arithmetic operating STO. Zero-Knowledge Proof adoption will play a key role in the mass adoption of blockchain, and BlockPillar is leading the way in this area by deploying high-performance VPU-based.
Skyhook Network (Singapore) — An institutional-grade digital securities distribution and trading network. Introducing this new asset class to mainstream financial institutions by providing a comprehensive network of digital asset services to institutional investors such as fund managers and family offices.
We also want to share the progress on the technical side, we always believe that the adoption of native blockchain technology will really drive the development of STO and show the potential of STO.
In this space, Jesus Rodriguez (CEO of IntoTheBlock, and Chief Scientist at Invector Labs) has contributed unparalleled foresight and insight, writing a series of articles in 2018 that provide an in-depth analysis of some of the challenges of STO in terms of technology evolution, standards, adoption strategies and more. As a result of this sharing, we have re-strategized from a technical perspective, focusing on and supporting technical teams that have the potential to make breakthroughs in these areas.
The improvement and further development of the technical infrastructure, in particular the development of on-chain compliance technology, is what will disrupt the existing traditional securities space. 24/7 trading, cross-jurisdictional trading, peer-to-peer transfers, self-custody of securities, integration with DeFi, and more derivatives trading, etc. Each breakthrough is a revolution in the traditional securities space. More importantly, ST can be seamlessly embedded into any crypto business ecosystem, creating a new flywheel effect to drive rapid business growth. We harness the technological innovations in the crypto world and help our partners understand and adopt them.
We have also benefited from the research and ideas of our peers. Daniel Liebau of the Rotterdam School of Management led and authored the world’s first academic paper on STOs, providing a more precise definition of STOs, analysing the data and key technical challenges of global STO adoption and, more importantly, proposing a model for STO adoption and setting key metrics through an analysis of global STO cases, shedding further light on the future of STOs.
For the simple reason that a deep understanding of technology is the only way to deeply understand the future trends of business, we founded and participate in the technology community — Primitiveslane. It brings together top developers and researchers in blockchain, cryptography, and crypto finance to regularly share the latest technology information and exchange the most profound ideas, including the technical development trend of DID/wallet/account abstraction and other infrastructure. This has allowed Magic Circle to benefit from the technical aspects and to continue to think about what kind of business innovation these underlying technical developments and changes will ultimately bring. This has effectively helped us to really understand the technology and enable us to more accurately grasp the future and pace of STO.
Our clients and partners are rooted in different sectors of the crypto world, from different countries and different niche tracks around the globe: Web3/DeFi/NFT/GameFi/Metaverse… Together we will prove that issuing tokens in compliance with securities laws is not only feasible, but more importantly a successful demonstration of long-term value creation for ourselves and the wider crypto finance world, and that the market will eventually reward long-term value keepers.
We have built strong partnerships with STO institutions in every major financial centre in the world, including the US, Japan, Singapore, Hong Kong and Dubai. Our thinking, insights and experience are shared with these partners and we reap the benefits.
Magic Circle demonstrates an unparalleled cohesiveness with experienced entrepreneurs, renowned investors, blockchain experts, and lawyers, always moving together around a common vision — to explore the infinite possibilities of digital securities with our partners. Magic Circle is not just a professional advisory firm or a technology platform, we are a new ecology — connecting business innovators, advocates, technology contributors, regulators, investors, etc. In this ecology, each actor demonstrates infinite creativity and imagination, where technological and business change are intertwined. More importantly, we will be more respectful of the rules. Yes, these rules are sometimes a constraint, limiting our freedom to play and explore. But we are convinced that such rule-based restrictions will lead each participant to understand the true meaning of responsibility, rather than just being controlled by the boundless desire for profit and exploration.
I strongly agree with a quote from INX founder Shy Datika：“Changing the engine to an electric one doesn’t mean you don’t need to stop at a red light anymore!”
Welcome to join the Magic Circle community to discuss and create the infinite possibilities of the future of digital securities with us.
