How big is the Security Token Market and does it matter?
Crypto is currently worth $1.8 trillion down from a peak of $3 trillion, how does this compare to the potential security token market and if everything is tokenised where do cryptocurrencies fit in?
It is not necessary for you to be a cryptocurrency believer to imagine the underlying technology of crypto is going to change the financial sector forever by tokenising the markets. In fact don’t take my word for it listen to Jay Clayton, former SEC Chairman, who said;
…there were stock certificates, and today there are digital entries representing stocks. “It may be very well the case that those all become tokenized,”
That is a market of $125 trillion that will be tokenised. How does that compare to other markets?
In anyone’s money that is a lot of tokenised securities. There is a lot more however, as the liquidity that could be in other markets is enormous. At the World Economic Forum in Davos in 2020 theye were discussing the tokenisation of the private equity markets which is $600 billion+ .
The global insurance market? $5.1 trillion. The venture backed pre-ipo market? $500 billion+
The market where substantial tokenisation will also take place is commercial real estate weighing at $32 trillion in value.
So why is the tokenisation of these markets important?
- It might make cryoptocurrencies in their current form obsolete.
The rise of the stablecoin has rattled regulators, but it has also opended up many opportunities for wider adoption of crypto. Those who hate crypto, or don’t understand it, point to the volatility of coins and conclude that such a volatile instrument could not be used as an exchange of value. Stablecoins solve that particular issue.
Stablecoins are backed by an equivalent amount of the currency they represent so £1 of TrueGBP (a GBP stablecoin) is backed by £1 in an account. Obvioulsy there is a trust factor that the currency is, in fact, backed by the equivalent currency but that is a different article.
The problem for these currencies, and crypto currencies in general, is that if the wider userbase for crypto wants something that is backed by something stable, then why use currency? The distrust of governements all over the world have lead to the rise of crypto so why revert back to relying on those currencies? You have solved the double spend problem but not the problem of stimulus, political manipulation and governemental controls.
What if I could spend a one hundred billionth of Buckingham Palace in exchange for a Costa Cappucino? Buck Palace is estimated to be worth £3.6 billion, conveniently a large Costa Cappucino is £3.60. What about paying with a fraction of a Picasso, the Eiffel Tower or the Pyramids?
It sounds mental, but it was not too long ago that money was backed by Gold, where the issuance of money was physically limited to the quantity of Gold available. It was known that Gold got more exopensive to mine as it became rarer, would be of limited ultimate supply and would hold a value given to it by the community that used it. Sound familiar?
All that is need for this to be a reality is a reliable platform that values the underying assets based on community (i.e what the community perceives the value of the ‘token’), based on regular audits and transparency.
Our stock exchanges do that for securities and it is likley that they will do it for these real-world tokenised assets.
2. Releasing liquidity in markets such as real estate could democratise wealth.
There are enough troubles in the world right now that we could take our eyes off one of the fundemental problems of our time:
I am a capitalist, no question. I believe in the free market and I believe in capitalism as the most succesful economic structure we have. However, if you allow a free market only to be avialable for the benefit of a certain portion of society, you are in trouble. That is what has happened and is happening and it will only get worse.
For example, the property market fell substantially in 2008.
If you were in a position to buy housing assets across the board with cheap financing to leverage your buying power, you would be substantially wealthier than you were when you started. The issue is that the only people who could access cheap money to by more assets were those who already had lots of assets.
In 2008 there were 1,125 billionaires with a net worth of $4.4 trillion. In 2020 that had risen to 2,095 with a net worth of $10.2 trillion.
I am not saying that this is negative thing, wealth creation is good, but wealth creation should be something that everyone has equal access to and they simply do not.
The tokenisation of everything and the inevitable tools, structures and methods of trading that follow should be open to all not just the rich, or hedge funds or ‘educated’ middle men.
If a billionaire can make 100% on their money buying property and using leverage allowing a normal investor to buy into that trade through tokensation can only be good for society as a whole.
3. Diversification lowers risk, not banning people from investing.
Imagine this; everything is tokenised. In my future ASMX App I have inputted the risk I want to be exposed to and three areas I am loosley interested in investing. The app lets me know of four or five strategies it could perform across broadly what I was interested in investing, gives each a risk score, a yield and any lock-in period.
That basic AI powered algo can now seek opportunities in lending and borrowing protocols, tokenised assets, liquidity pools and all manner of other tokenised assets and income streams. This is because everything is accessible and tokenised from lending yeilds to forward income that has been tokenised in energy projects, for example.
The platform that can do this will be an interconnected ‘exchange of exchanges’. There are plenty of people working on the potential of tokenised assets and plenty of businesses working on the exchanges to trade these, ASMX is working on how our exchange solution achieves open access to all of the potential places where the yeild from tokenised assets can be gained.
Using the power of networks, the security and transparency of blockchain and the regulated security and scrutiny of stock exchange based platforms could, and in my opinion will, revolutionise investing for everyone.
Just has Facebook, Twitter, Linkedin and Google changed society in ways we could not imagine a couple of decads ago, tokenisation and the networking effect of exchanges will be the rising tide that lifts all boats in the fight against wealth inequality.