Security tokens — the future of Crypto?
Last year was phenomenal for the cryptocurrency market; the market capitalization increased by more $USD 550 billion. Initial Coin Offerings alone raised in excess of $USD 6.5 billion. Cryptocurrencies and blockchain technology have revolutionized fundraising through token sales. The question that arises from such growth is, why are tokens so valuable? How do tokens find intrinsic value? What benefits are offered to token holders? More often than not, like most exchange-traded assets, tokens are seemingly purchased for speculative gains, with little reason for purchase founded through the token’s functional utility. Utility tokens often provide the owner with a license extending access rights to a platform or protocol; no legal or economic rights are offered to holders. Token sales of such assets are often unregulated and accessible to anyone, with respect to local government regulation.
With a year of exponential growth in 2017, overconfidence fuelled investor sentiment, creating a dissonance between token’s market value and fundamental value. Scepticism continues to brew; many market participants are expecting a continued correction. Following this, light is falling on alternatives, namely, security tokens. Security tokens offer holders ownership exposure of the underlying asset; legal and economic rights are often extended to the holder through programmable equity as voting rights and dividend rights, respectively. Consequently, regulatory bodies, such as the SEC, employ stringent criteria necessitating holders to submit a KYC submission, granting them any such aforementioned rights. Real estate ownership, stocks, venture capital shares can all be tokenized. Security tokens are bridging the gap between traditional financial assets with the blockchain. Through tokenization, financial assets are now becoming available to billions of prospective buyers around the globe. With a marketplace that is continuously active, with no limitation on trading hours, a marketplace with no middleman and thus, lower trading fees, a marketplace with higher liquidity on a decentralized network, reasoned speculation suggests that 2018 will be the year for security tokens.