Security Tokens: Delivering liquidity, safety and value
The stage is set for major changes across the global financial landscape
The benefits of fungibility and accountability that cryptocurrencies gave us in the last decade are transitioning this decade to the broader financial industry, in the form of security tokens. Security tokens are bringing to shares and other assets many of the benefits that blockchain delivered to cryptocurrencies.
Paradigm shifts in the global financial system don’t happen often, and adoption requires strong incentives to be present in the market. Security tokens are one such shift and although they are relatively new, we at MetalStream believe they represent significant value to compel widespread global adoption.
The promise of security tokens
Security tokens have three core value propositions that combine to improve the way that equity can be transacted and stored. Broadly speaking, security tokens facilitate improvements in liquidity, safety and value that represent a stronger use case than traditional securities.
Thanks to the blockchain and their digital nature security tokens are extremely liquid.
Security tokens listed on the blockchain have an immutable record of ownership that can be continuously traded on global platforms. The programmability of tokens means various transfer restrictions are automated at the token level, so they can be traded easily without violating any applicable regulations or issuer-enforced rules. This eliminates the restrictions of traditional marketplaces which are usually tied to a location, time, and other operational restrictions.
Security tokens can now be traded from any place at any time and offer clear advantages for investors because of their liquid nature.
Security is always a concern with any asset, and more so with a digital asset, whereby the intangible nature of the asset makes it vulnerable to theft.
Unlike cryptocurrencies, security tokens have this core value baked into their architecture. In the event that the holder of a security token loses access to their wallet of there private keys are compromised, the tokens can be transferred into a new wallet by the issuer at the request of the rightful owner. Should the owner lose access to their security tokens through theft the issuer of the tokens can forcibly transfer tokens back to the owner — and the theft itself is visible via the audit trail left on the blockchain, making it relatively simple to follow-up with authorities.
Security tokens are the digital representation of rights to an asset. They can be reissued at any time, and their provenance reported on. They simply cannot be lost or stolen, and the issuer always knows who is holding the token.
Beyond the value delivered through improved liquidity and safety, the shift to security tokens will bring investors the opportunity to purchase securities at rates which represent a significant discount to traditional markets.
Security tokens offer new and vastly more efficient methods for raising capital, transferring assets, encapsulating and enforcing rights, managing investors, and creating liquidity. The fundamental ways that security tokens deliver value are changing how finance works in certain industries, and beyond the efficiencies created for the issuers, are allowing investors to buy assets at greatly reduced prices. Gold and other precious metals are an excellent example of how security tokens deliver value for all market participants.
Security tokens at work
At MetalStream we are committed to delivering the value of security tokens to our partners and our investors. Leveraging our relationships with mining development companies globally, our contacts in the financial world, and our knowledge of technology, we are delivering value to all parties — giving non-dilutive financing to the mine developer and precious metals to the market, both at a significant discount.
The financing required to develop a mining concession and extract precious metals usually requires either a dilution of shareholding or debt financing that carries cost-prohibitive interest payments.
Value for the Mining Developer
After identifying a suitable partner, we negotiate the purchase of gold to be extracted from their mine in the future, via a “metal stream contract”, and commit to paying the mining developer money now for this future delivery of gold. This is usually for 10% of the known deposits of gold, based on verified third party reports.
We pay a significant discount to the current spot price of gold, which the mining developer is happy to accept, as it enables them to start production. The most important aspect for the mines is that they are able to access the initial liquidity required to begin precious metal extraction without diluting the equity of existing stakeholders or being burdened with cost-prohibitive interest payments.
Value for the Investor
MetalStream MSGLD tokens are issued on the Ethereum network and backed by the gold to be delivered to us by the partner. The tokens can be held, traded, or even redeemed for physical gold (at which point they are destroyed). MetalStream uses 25% of the token sale proceeds to purchase and store gold bullion for redemption and adds to this store as gold is delivered from the partner.
We sell the tokens at a 30% discount to the current spot price of gold, delivering excellent value for investors in what is potentially the beginning of another bull market for gold.
Value for the Company
In between delivering financing to the mining developer and the gold to the investor, MetalStream generates a significant return, which enables us to then look for and repeat the cycle with additional mining developers.
The future is bright…
The opportunities delivered by the MetalStream model are significant. Security tokens are able to deliver value to every participant of the marketplace, and this will help to drive adoption of security tokens in industries beyond mining.
Tokenization is already taking place in industries as diverse as art, real estate and even professional sports. The limits to what can be tokenized and how tokenization impacts industries have yet to be defined. At MetalStream we are excited to facilitate the tokenization process and we are committed to ensuring we deliver value, liquidity and security in the precious metals market.