Your Official Guide to the Security Token Ecosystem

The combination of forces has created a new frontier in financial innovation.

What are Security Tokens?

Security tokens, tokenized securities or investment tokens, are financial securities compliant with SEC regulations. These Gen-2 tokens can provide an array of financial rights to an investor such as equity, dividends, profit share rights, voting rights, buy-back rights, etc. Often these tokens represent a right to an underlying asset such as a pool of real estate, cash flow, or holdings in another fund. These rights are written into a smart contract and the tokens are traded on a blockchain-powered exchange.

Some evangelists claim that these securities will soon become so popular, traditional stock exchanges and OTC markets will be completely replaced over the next decade.

For more on types of security tokens and how they differ from utility tokens, please refer to an earlier piece here.

Why tokenize?

Advantages of tokenization include fractionalization of larger assets, increased liquidity, lower issuance fees, and greater market efficiency. However, the greatest benefit that security tokens provide an issuer is access to a global pool of capital. As these tokens can be sold and traded internationally (when compliant with regulations), they become more fairly priced and, therefore, attractive to investors. This SEC compliant offering is appealing to both institutional investors for it’s more recognizable structure, and to crypto investors for its technological innovation.

New Term to Know: “STO” — a security token offering. Similar to ICO for utility token offerings.

How to tokenize?

If you are thinking of tokenizing your next funding round, prepare yourself for a six month process of hiring advisors, lawyers, and engaging with some of the following platforms. When done correctly, your company should spend two months working with advisors and legal counsel on structuring the offering, and creating marketing materials, one month working with a technical platform to onboard your token, and three months conducting a roadshow for both traditional and crypto investors.

Issuance Platforms:

These platforms range from open-source protocols for token issuance, requiring technical expertise, to more turn-key technical and advisory services.

Polymath

Harbor

Securitize

Swarm Fund

Hybrid Solutions:

Templum

Securrency

Exchanges:

tZERO

OpenFinance Network

AmbiSafe/Orderbook

Liquidity Layers:

Bancor

Airswap

Existing Tokenized Securities:

Brave the new world. As there are only a handful of existing issuers and only about a dozen more in the works, this is the frontier of financial innovation.

BCap (Blockchain Capital)

Science Blockchain

Lottery.com

SPiCE VC

Upcoming Issuances:

22X Fund

PropertyCoin

Siafunds

Slice

Law Firms:

Some of the legal heavy-lifting such as KYC/AML will be automated by the issuances platforms. Nonetheless, getting good lawyers to structure your security token is crucial.

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Tatiana Koffman

Tatiana Koffman

1.5K Followers

Investor. Writer @Forbes. Uncomplicating the complicated. Follow on Twitter @TatianaKoffman.