Security Token: Institutional Path to Cryptocurrency Mass Adoption
Initial coin offerings (ICOs) have raised over $20 bln this year, and ICO has completely changed the way startup raises funding in the unregulated market of cryptocurrency. Through ICO, startups may issue their own crypto tokens on a blockchain and distribute them to the financial contributors to the project. Depending on their use cases and functions, these crypto tokens may be deemed as either utility tokens or security tokens.
More than 90% of the projects currently listed on Coinmarketcap mask themselves as utility tokens to avoid regulatory concerns. Utility tokens typically represent future access to a project’s product or service. While these utility tokens are not designed as investments by nature, many people still choose to invest in the hope of quick and powerful returns on their investments.
However, many utility tokens have no intrinsic value, and they are highly volatile in the cryptocurrency market. Without real inherent value and the lack of regulations over ICO, it is difficult for institutional money to flow into the crypto market.
What About Securities Tokens?
Security Tokens are essentially financial securities with a digital wrapper around them that are enabled to trade on the blockchain. Security tokens can be backed by real-world assets such as equity, shares of a limited partnership company, or commodities.
Moreover, securities tokens are subject to federal security regulations. With regulatory compliance over crypto assets, security tokens have the potential to open up a gateway for institutional players, ushering in a new wave of fresh money into the crypto market.
Why Tokenize Assets?
Global stock markets are closed more often than they are open. Take the Hong Kong Stock Exchange (HKEX) for example, HKEX open at 9:30 am and close at 4:00 pm on weekdays. On the weekends, HKEX is closed for up to 65 hours, including Friday evening. In contrast, the crypto market is open 24 hours a day and security token exchanges will most likely adopt this practice, enabling the trading of security tokens every minute of the day.
On a bigger scale, the crypto market is global by default. If we compare the Hong Kong Stock Exchange, New York Stock Exchange, and the London Stock Exchange, these exchanges are very different in nature and have completely different pools of liquidity.
With security tokens, we have the opportunity to potentially combine these liquidity pools into one global pool, opening up new investment opportunities and price discovery for countries that have not had in the past.
In traditional markets, you cannot buy or own a fraction of a share. Fractional ownership is especially useful for other asset classes like real estate. Hong Kong was recently ranked as the most expensive housing market in the world for the seventh consecutive year, making real estate in Hong Kong one of the most lucrative alternative investment.
There are thousands, if not millions of people who would want to purchase a flat in Hong Kong but the cost is too expensive, which significantly limits the total addressable number of buyers in the housing market. On the blockchain, fractional ownership of a traditional asset can be achieved through asset tokenization. An HKD 50 mln housing flat can now be sold at HKD 1 mln worth of tokens to 50 buyers in the market.
Plutux is the first cryptocurrency to cryptocurrency exchange to empower traders with customizable and user-friendly advanced trading features in a mobile-centric, gamified, regulated and ethical environment. Upon acquiring a securities license, Plutux will develop into a securities exchange enabling the tokenization of new and traditional securities.
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