Why you should only invest in Security Tokens
If you have been focusing on the cryptocurrency scene lately, no doubt you have seen that there is an abundance of buzz including the expression “securities” and how security tokens will after a short time overpower the financial world. We have a new year and a new Trend: ICOs are dead, long live STOs. Why 2019 will be the year for Security Token Offerings.
“I heard about utility tokens and security tokens, but what’s the difference between them?”
With utility tokens, the investor does not participate in the issuing company, but only invests in a possible future service. A utility token provides their holders to the companies product or service. However, they aren’t issued in forms of typical investment assets.
Whereas the security token of edeXa AG, for example, enables the investor to become a shareholder in a technology leader and to participate in the success of dividend payments and price increases as well as the successful sale of the company.
Securities can be portrayed as cash-related instruments or money related contracts between two or more parties. They can be issued by basically everyone, for example, a company, the government or any other group. The aim of a security token is it to yield ownership rights such as,
- commitment rights
- rights to buy, move or trade any kind of goods or service
- share (or stake) in a public company
- A Digital Asset
Various professionals have foreseen that these recently propelled securities will replace stocks and lead to an increasingly noticeable choice of the blockchain development and Security tokens.
Why should you invest in security tokens?
Let us address the hype Security tokens are surrounded by. What’s noteworthy about the relatively new tech? Why are people hyping it and getting all over it? Here are a few points why Security Token Offerings (STO) are taking on blockchain market by storm.
Security Tokens are Trustworthy
ICO’s were great. However, it can be scary. The lack of regulations, the shady facebook advertisements to quadruple your investments overnight and the dozens of scams and failures.
There’s no real accountability when it comes to ICO’s. You merely invest in a token that promises something in return.
With ICOs all you get is mostly a currency redeemable only within the issuing company. If the company discontinues accepting the token or changes the use of it, your utility token will be rendered useless.
So why should security token offerings be any different? Well, they are a bit more regulated! For instance, our edeXa STO is regulated by the Financial Market Authority of Liechtenstein.
The same authority which regulates common Initial Public Offerings in Liechtenstein. Investors receive a part of the actual underlying shares. The security Token merely helps to make the funds easily transferable between Investors.
Transaction costs for digital Tokens are at a bargain
The funds are not only easily transferable but also at a much cheaper rate than what you’re used to from common stock market brokers. In fact, the price for the transfer of your tokens might be very close to zero. All this with trading times 24/7 — whereas the conventional, the historic stock market closes every night and every weekend.
Let’s face it. Wouldn’t we be happier if we could reduce our expenses without decreasing our returns?
For example, if you are about to get a car, you wouldn’t be too keen on having a middleman who will receive a hefty commission and jacking up your purchase price.
You can purchase cars through ‘safe transaction’ without the intermediary costs. Banks & Middlemen are eliminated which means, the transaction gets significantly cheaper.
Light speed Transactions for Security Tokens
The world is a fast-paced environment nowadays. Yet, the usual settlement in the stock market still takes two days for most brokers. This sounds like an outdated concept.
Security tokens can offer similar safety at a much higher speed to its clients. How? The reason is simple: The fewer people that are in the structure, the speedier the methodology will be. There are no clearing houses, big banks and broker that need to pass the stocks to one another. Sure, even they do it digitally, but it still goes through many hands. This can be avoided and transaction times can be increased. Hence, time is money and money is crypto (maybe not yet, but soon).
Trading Security Tokens around the globe
When you think about securities and stocks, the market you deal with is limited. However, with the Security Token, it is a whole different story. Your clients can be spread across the globe and they can carry out transactions with no hassle anywhere. Hence, this freedom leads many investors jumping on the Security Token train.
However, since there will be some kind of regulation for Security Token the idea of simply swapping the Token internationally will be prohibited by the regulation of the governments. Technically, it would be absolutely hassle-free. edeXa is fortunate enough to reside within the European Market for example. Hence the token is freely tradeable anywhere within the European Economic Area.
How will Regulation affect Security Tokens
Many Investors these days worry about the regulation of Security Token. This is a pressing issue and most countries can’t keep up with the fast-paced environment of the crypto and tech industry. Although cryptocurrencies have been tradable for a few years now, there are still many question marks in regard to how they are taxed across the world.
Furthermore, because each Security Tokens still relies on a different economic mechanism, it remains very difficult to clearly judge the status of one token from a legal perspective.
The new Standard: KYC or Know Your Customer
Regular Banks have KYC Regulation for a while now, but outside the banking industry, KYC was mostly unknown. With the rise of cryptocurrencies and Token Sales, KYC became a ubiquitous topic — every person in the crypto-community now knows about the background checks. And KYC is here to stay. If Tokens sales want to become more mature, there have to be basic background checks to avoid money laundering. But there is more to it.
edeXa grants Investors the right to the actual underlying stock. This means investors will be listed in our stock register. Therefore we need personal information from each investor. Currently, this is the only way to legally secure ownership of a company.
How to Transfer Ownership of an asset with Token
If you invest in housing, there is a public register for most countries where every landlord or homeowner is registered. If you bought a building but you’re not listed in the register, then you have no legal rights to the building. The same is true for a car.
With other commodities, it is easy: Your phone or wallet belongs to you. It is in your pockets, inside your house or car. The same holds true about the Token itself. You’re the owner of the Token as long as you have the private key in your possession. But with Token backed assets, it is much less obvious. There is no current law, the qualifies a Token as a publicly tradable asset. Therefore there is hardly any real Security Token out there because investors have no legal rights to the ownership.
Liechtenstein will provide a new Blockchain Law
Liechtenstein is currently drafting a much anticipated Blockchain Law and is expected to sign it into action very soon in 2019. With this, the country in the heart of Europe will be one of the first to have a dedicated law. This offers investors and companies legal certainty and will propel further use of the blockchain technology.
It’s worth listening to the podcast of our Lawyer, Thomas Naegele in which he talks in detail about the new Blockchain Law in Liechtenstein;
The perks of the Single European Market
Although the regulation across the world seems opaque at times, countries within the European Market have a huge advantage. If a Security Token is admitted in one country, it is often also accepted in all other countries, thanks to a common legal framework.
Trading of Security Tokens
There are currently very few to no functioning Security Token exchanges. There are many big names saying they will have a solution ready shortly, but they have been saying that for a while now. There are numerous places for Utility Token but only unregulated small places for Security Token.
The good thing is — these exchanges for Security Tokens will follow shortly. The demand for Security Token increases every week. Some innovative people will come up with a working solution that tackles the existing problems with Security Token. Therefore we are confident that rising demand will provide a working Security Token Exchange within a reasonable time.
All in all, is it a justified hype around the security token offerings?
Considering the various benefits associated with security tokens, it’s quite easy to understand why they are becoming so popular nowadays. It wouldn’t be accurate to judge the hype yet as it depends on whether it will stay in the long run or not. Till now, the examples and the potential has demonstrated that security tokens will continue rising. Who knows, maybe they will make it into common markets. The potential is certainly there. When will that happen? Nobody yet time can tell.
It will be exciting to see if security tokens can, in fact, take the place of traditional investment methods and equities. Time will tell how this technology will evolve.
Start your new year with a great investment in the future of Supply Chain Management.
edeXa is a high-tech company offering enterprise solutions at the blockchain. Together with universities and renowned partner companies, we develop innovative solutions and services on the Business Blockchain of edeXa.
edeXa is a young start-up with experienced employees and an international footprint. edeXa AG is a spin-off of the successful io-market AG from Liechtenstein. The young company is focused on radically rethinking existing supply chain processes and delivering new solutions based on the blockchain.
To get more insight into our ongoing Security Offering, visit edexa.io, join our Telegram group, follow us on Twitter (@edexablockchain) to receive the latest news and in case you have any questions, don’t hesitate to reach out to us any time.