Securitised assets are set to eat the world… 🌎

We predict Security Tokens will be the game changer for this year and 2019 in the crypto-sphere.

Published in

Coinmonks

6 min readAug 23, 2018

The 2017 ICO (Initial Coin Offering) craze is losing momentum and companies around the world that were looking to ICOs to raise the necessary capital to build out and develop their platforms and dreams are finding it much harder to find accredited investors with enough funds.

Venture capitalists and high net worth individuals are no longer as cavalier when throwing (crypto)currency at projects looking for a quick profit. Speculative investment with pump’n’dump schemes are no longer a sure thing.

A new hope

Security Tokens and Security Token Offerings, STOs, are emerging from the ashes of many dead ICOs. In the traditional world of raising capital a company usually must give away equity or some sort of revenue share to cement a deal. Securities are regulated and legally compliant by nature, this is a massive change in the world of ICOs. Many ICOs or Token Generation Events, TGEs, have raised without KYC/AML regulation and without giving away anything other than a token which can be used once a product or platform has been built. With reports of only 40% of the top cryptocurrencies having a working product this doesn’t always receive the once prominent influx of confidence and investment it once did. The tide is changing.

Securitised tokens aim to encapsulate different things, new asset classes, now almost anything like real-estate, fine art, private equity, venture capital, investment funds, can be tokenised, regulated, and traded. Much of the focus so far has been on utility tokens that give access to a service as they are regulation free but in reality they can only be legally used in small subset of use-cases. Combine this with the technological features of blockchain one could imagine a future where all securities will be required to be issued using blockchain technology.

There are obvious gains growing the existing securities market from a reactive to a proactive industry. No longer will a regulator need to scour archives, reconcile multiple systems and find paper documents relating to securities trading, instead they can witness blockchain transactions and review smart contracts to directly understand trading practices and rules for an asset. It makes sense to us that this is a natural progression, however changing industry practices is not an overnight fix. This will take time and how long it takes and whether all the parties involved can collaborate to make this a reality is anyones guess.

Several companies around the world are building out the necessary products and services which will allow for the sale and trade of securitised tokens. Blockchain powered securities assets will have or need to have the following pieces in place before the movement really takes off.

Compliance and regulation standards — in its current form this looks alot like an ERC-20 token with some additional layers of functionality added which will allow for compliance and regulation checks at various stages from the trading themself to the actual holder of the token. Looking beyond Ethereum, blockchains like Stellar in our mind are a good fit for securitised assets. Stellar has a concept of trustline and transaction level complice built in a protocol level. With the advancements of these regulation friendly blockchains and protocols the wall gardens of security exchanges fall down and tokenization carries on consuming more and more traditional financial and trading products on the market.
Tradability & fractional ownership — blockchain tech can enabled 24/7 borderless and trustless trading platforms, ignoring the nuances of various technical offerings this is a given. Currently securities are hard to trade and can only be traded by certain people during the working day. This is set to the changes once assets are issued using blockchain technology. Fractional ownership of things such as real-estate are traditionally hard, this is not so much the case with a digital blockchain based asset and we will see more and more offerings in this space.
Instant and cheap settlements — with either ERC20 based or Stellar based securitised assets should in theory have a near instant and cheap settlement costs. A world wide platform for borderless and cheap securities trading opens the market up to new possibilities. Settlements can take days at present but this will disappear and be as fast as a confirming a transaction on-chain. This is also ignoring the back-office savings that are possible with an automated and compliance crossborder settle system. Settlements happening in a secure and regulated fashion with programmable contracts which dictate the rules and regulations needed to comply with the various laws in various jurisdictions around the world.
Asset interoperability — there is yet to emerge a winner in the standards for a securities asset but several are in the making. With this standardisation brings larger volumes and liquidity and the ability to trade between different assets in a fully regulated and compliant way, something which has not yet been fully realised for securities either traditional or blockchain enabled.
Security token custodian services — several firms are already offering customidan services for cryptocurrencies, these will also need to start offering custodian services for tokenized securities as well. This is an obvious move from what we can see and a move which will be required for mainstream and institutional movements.

Above are some of the things we believe with be enabled and things with we think need to be brought to fruition over the coming months and years.

We believe that 2018 will set the foundations for blockchain securities and in 2019 volumes and liquidity is set to increase and then securitised digital assets are set to eat the world, one asset type at a time.

Some of the frontrunners in these areas can be seen in below with a breakdown of where they fit in. We aim to do a follow up post on the various protocol offerings in the security token space.

Polymath — https://polymath.network — security token protocol that aims to provide legal and regulatory compliance token issuance smart contracts.
Harbour — https://harbor.com — a platform of issuing and trading security tokens as well as offering its own security token protocol.
Swarm — https://swarm.fund — SRC20 protocol creators — a Stellar based security token and marketplace for issuing security tokens.
Securitise.io — https://securitize.io — providing a full platform offering for securities issuance and trading, protocol adherence to Open Finance.
Open Finance — https://www.openfinance.io — open source platform developing open protocols and services for use in the security token trading and issuance.
tZero — https://www.tzero.com — an exchange and ERC20 compliant security token, specialising in traditional and security token trading.
DSTOQ — https://dstoq.com — Stellar based regulated securities exchange. Invest in real-world assets using cryptocurrencies.
Highcastle — https://highcastle.co — private securities and alternative investments platform and marketplace.
SharePost & Lightyear — https://sharespost.com & https://www.lightyear.io — Stellar-based security tokens and exchange platform based on shareposts Global Liquidity and Settlement System (GLASS).

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At BlockRocket we can help you understand, build, develop and guide you through the processes of doing an STO. Please reach out to us for more information or if you have any further questions.

Securitised assets are set to eat the world… 🌎

We predict Security Tokens will be the game changer for this year and 2019 in the crypto-sphere.

A new hope

Further reading

Written by James Morgan