STO ‘Hype Cycle’ to fuel Resurgent Crypto
Security Tokens (STOs) will become the “next hype cycle” in crypto and grow rapidly into a $1 trillion industry, according to a panel of experts at TechCrunch Disrupt Berlin.
Jamie Burke, the founder and CEO of Outlier Ventures in London, predicted an “awful” STO bubble in 2019, which was forecast by Vinay Gupta, the CEO of Mattereum in London, as being “the descent of algorithmic finance for everybody”.
The nascent STO space has already become the focus of major crypto exchanges.
Coinbase, the $8 billion crypto exchange, has stated that it aims to be the primary marketplace for the trading of crypto securities. Coinbase has acquired a broker-dealer (B-D) license and alternative trading system (ATS) license, along with a registered investment advisor (RIA) license, according to a blog on the company’s website. Meanwhile, Binance, the world’s biggest crypto exchange, plans to launch a new digital platform for security token trading with the Malta Stock Exchange. OpenFinance Network, a trading platform for STOs, and tZERO, an STO exchange, are poised to offer a flood of STO listings in 2019.
Burke said it was up to crypto exchanges to seize the opportunity offered by the rapid development of STOs as an asset class by building the technology to trade the products, integrating white label offerings or acquiring an STO exchange. “There will likely be a separation between cryptocurrencies and utility tokens from security assets because you don’t want to mix those,” added Burke. “The problem is not with tokenisation or any regulator. The problem is with how they are sold.”
Burke argued that the US’s Securities and Exchange Commission (SEC) was not fundamentally opposed to the concept of STOs that enable startup investing. “The problem is in the last couple of years people have been selling high-risk assets indiscriminately to retail investors and that is not acceptable to regulators,” said Burke. “The problem is not tokenisation it is the wild west of the ICO.”
Gupta said a huge flood of institutional capital will flow into STOs and have a democratising effect on investing, providing retail traders with myriad opportunities for obtaining exposure to digital assets that could be traded algorithmically. “Right now the only entry to hugely diversified portfolios are things like pension funds, hedge funds and private equity,” said Gupta. “When you end up with these tokenisation systems where you’ve got lots and lots of different assets that are now available as crypto tokens almost anybody can do their own optimised portfolios for those kind of token systems. So that allows for anybody to run software algorithms on portfolios across a much wider range of asset classes.”
Gupta said he didn’t expect to witness the “extreme” increase in valuations that swept across crypto markets in 2017 as STOs are linked to assets that already have a valuation according to the conventional metrics of investing. “It is going to be vastly less diversified, much less volatile and much more like real finance,” he said. Gupta expects a proliferation of “homemade algos” with retail investors “basically being their own quants” or downloading algorithmic trading software on to their PC or laptop.
In anticipation of huge investor demand for STOs, Polymath, a platform where issuers can create STOs, is working closely with OpenFinance Network and tZero to ensure its technology is compatible with the two exchanges. Polymath is focused upon making it easy for issuers to create STOs, along with building a standard for the way that securities function in the primary and secondary markets that maintains full regulatory compliance, according to a spokesman. The Polymath spokesman added that retail investors’ eligibility for STO investments will be decided on a “case-by-case” basis, with the issuing entity making a decision on what type of offering will be made available and to whom.
“It is the asset availability that really changes,” said Gupta. “If people are tokenising odds and ends of real estate in weird jurisdictions and pieces of real estate and whatever you wind up with a much broader range of assets that are available in that format, simply because of reduced transaction costs.”
Kaidi Ruusalepp, the founder and CEO of Funderbeam, a platform for investors to buy and sell equity stakes in private businesses, predicted that the STO market could reach a $1 trillion valuation before the hype cycle breaks. “It is like the air bubble,” she said. “You have to burst it.”
Moondock’s team is following the ascend of STOs closely because Moondock aims for more transparency and accountability when it comes to the funding of blockchain projects. To that end, the development of new offerings and technology will become an important funding tool in the startup ecosystem. Indeed, we see a huge pent up demand for startup investing in blockchain technology as some of the brightest minds gravitate towards this space.
The Moondock ecosystem helps visionary entrepreneurs share ideas and collaborate on innovative blockchain projects. Our platform fosters a culture of value investing and product development. We empower pioneers in the blockchain space to build great products that demonstrate a genuine use case for the blockchain.
