Tokenisation of Securities: Real World Applications — Widening the Participation Pool
Initial Coin Offerings (ICOs), or Token Generation Events (TGEs), have always been a challenge for the crypto community. The major plus point of an ICO is that it can provide a route to funding for small and medium enterprises (SMEs) that may find barriers to entry using traditional funding methods. This, coupled with potentially high liquidity and the community-building aspect of the ICO model, made it an attractive funding method for fintech and blockchain-based businesses.
However, the token economy is evolving. Regulation is becoming the focus of token-based economies as we approach the end of 2018. With that, Security Token Offerings (STOs) are paving the way for a more secure future, with all the benefits of an ICO, but a more stable and secure environment for investors.
It’s not only investors that will reap the benefits of the shift to the STO model. STO investment opens up the field. It allows for potential investors to make smaller contributions, rather than being limited to those that have a broker or an investment advisor. Large investors usually look to gain a controlling stake in a business, yet with the STO model, it’s more about the power of community and crowdfunding.
Stable, Strong, Secure
STOs could be the stable, secure route to market that investors have been looking for. There’s no denying that the token economy has blossomed over the past few years, with even mainstream organisations looking towards a tokenised ecosystem. So, what is it about STOs that can lay foundations for a more mainstream future for tokenisation?
The US has already implemented guidelines that cover an STO:
However, in Europe, it’s a little less clear. STOs fall under the regulation of securities, but with no current security tokens on the market, it has not yet been established what effect this regulation may have on transacting a tokenised security. What is clear though, is that this environment creates a less risky pathway for both serious and emerging investors to trade these digital assets in a way that is regulated by the existing laws, ensuring greater protection for both investors and issuers.
The potential of regulation is not the only attraction to new investors — often the price of a stake has been a barrier to entry. STOs work like the traditional crowdfunding model — a range of different tiers that allow for investments of varying value. Traditional investing has often been viewed as the domain of wealthier, well-connected and financially-minded individuals. The STO paradigm could shift this — small-scale investors and small-scale businesses could benefit from the lower stakes.
The Distributed Ledger Technology (DLT) utilised by STOs is key to the successful adoption and implementation of security tokens by SMEs. Often, they find themselves locked out of traditional public trading, not only by a lack of funding but also logistics.
In a traditional marketplace, small businesses have hit a hurdle when trying to maintain a ledger of who owns what. It takes manpower, time, and money to keep on top of all the attendant recordkeeping. Blockchain is revolutionising that by creating an instant, immutable record of transactions performed by using smart contracts. This creates a more efficient, transparent, and more liquid environment, with no middleman or lengthy process to tie up investments.
When it becomes easier to issue shares, it opens up the world of investment to a wider pool of potential investors, as well as to a larger range of businesses seeking to raise funds.
A Secure Ecosystem for Everyone
The crypto economy is borderless — it’s open to everyone. At Tokenise (a trading name of Kession Capital Limited), we believe this should be the case for token economies. We aim to create a stable, regulated marketplace that offers greater liquidity, easier access to fundraising, and a hub for community-building.
Security tokens are the future. Tokenise’s mission is to help facilitate the transition to STOs. We aim to leverage our FCA regulatory permissions, to be able to offer a regulated, fully compliant crowdfunding platform for the issuance of security tokens, and a bilateral secondary market to facilitate trading.
It’s our honest belief that we can transform the token economy with a cost-effective, secure and regulated market that allows everyone to reap the benefits of the financial ecosystem of the future.
Tokenise is a Kession Capital Limited brand.