tZERO did what? — January 2020 Observations
The security token trading and data analysis report I compiled for January was filled with surprises — tZERO did something most would not expect. If you didn’t get a chance to read the report, compare all asset prices, volumes, and more in detail here.
After conducting my analysis, I made a few observations of what occurred in January and how we can improve upon our industry. The security token industry had a total of ˜$194K in gross trading volume between the three live marketplaces: tZERO, Uniswap, and OpenFinance Network, but it did not come as one would expect; there was a significant dollar volume discrepancy between the liquidity providers. OpenFinance and Uniswap had a total of 8 traded tokens in January. The obvious assumption would be that these marketplaces would have the vast majority of the volume due to housing more of the tokens. That couldn’t have been further from the truth.
tZERO had only one actively traded token, yet represented˜88% of the trading volume in dollars… wow.
This is a clear indication that the number of security tokens an ATS or exchange may have is not indicative of more trading volume. “If you build it they will come.” In other words, if these assets are in high demand, then investors will trade. I believe a huge proponent tZERO incurred the majority of the volume is tied to the future potential that tZERO represents. Being a subsidiary of Overstock.com — a well-known, reputable brand with a market capitalization exceeding $350M — they have successfully positioned themselves to be an outspoken public leader in the industry. The investor letter from their CEO, Saum Noursalehi, mentions that they have over 200 companies in their pipeline with plans to add as many as possible to their platform. Additionally, he mentions that Overstock.com/Medici Ventures (the company’s venture arm) is committed to supporting them financially if need be. Currently, tZERO only has TZROP with active trading, but they will look to use their strong brand and reputation to maintain their trading volume dominance.
On the other hand, OpenFinance has 5 live trading assets on their ATS but has very little consistent volume. The low volume could be associated with a multitude of factors, but it is clear that the current assets are not in high investor demand. Despite recently announcing the addition of Current Media ($CRNC) to be listed in Q4, there is not much information or transparency regarding the token’s underlying asset on the company’s site or through OFN directly. This is a common problem for each of the live assets on the platform. We definitely need to see some more transparency — isn’t that what blockchain is all about anyway? We at Security Token Market are aiming to provide high-quality, quantitative-based content to counter the current information asymmetric environment that investors, innovators, and enthusiasts currently reside in.
Moving forward, the advent of high-quality assets should be a top priority for these trading platforms if they are trying to scale and add legitimacy to themselves and to the space.
I’m looking forward to analyzing the St.Regis Resort Security Token in the future. They tokenized their property and sold it to accredited investors in the US under the Reg D 506(c) exemption and has been a hot topic across the community since its inception, but we are still waiting for them to be listed on an ATS — it appears the lock-up and on-boarding period is taking longer than originally anticipated. When the token does actually list, you can be sure its trading prices and volumes will be listed on stomarket.com 😏
Aside from high-quality assets increasing volume, eliminating all resistance to the investor on-boarding process should also result in an uptick in volume. Any exchange or ATS should be asking themselves this one, vital question:
“How can we simplify the on-boarding process for our users?”
At the end of the day, a primary focus for any liquidity provider should be to increase trading volume, therefore maximizing transfer fees, resulting in higher revenue. In the nascent development stage that security tokens are in, there are aspects that are in our control and aspects that aren’t. After we wait for global regulation to catch-up, we need to be focusing on creating a friendly, inviting environment for the user to thrive. The vernacular associated with security tokens like blockchain, interoperability, smart contract, etc are daunting enough to the average person — the goal should not be to intimidate but to welcome. If the process is overwhelming, then people will give up, leading to less volume and ultimately less revenue.
I recently made an investment in a security token and let me tell you, the process was not seamless, it was not smooth- it was actually nerve-racking. Maybe it’s just me, but whenever I transfer ETH or any crypto from one wallet to another, I always second-guess myself and think I missed one character, which would result in me losing the amount I transferred forever — not a scalable solution. Thankfully, this wasn’t the case. I digress — the point is if we are trying to evolve from the traditional markets, we need to mirror the current investment processes when on-boarding investors and interested parties.
When additional high-quality assets are listed providing a diverse set of investible assets, information transparency is prioritized throughout the entire lifecycle of the instrument, and the on-boarding process is made stress-free, the industry will be ready to thrive. Until then, we must be patient and focus on doing our part. Everyone has a different role to play — ranging from actually issuing a security token to drafting monthly quantitative analyses and blog posts, even to participating in our incredibly active twitter community and being one of the 1,437 individual users to vote in our most recent poll, I am consistently reminded that it is a global team effort! As my fellow enthusiast friend Woken Token likes to say, let’s ride this wave together to the top 🌊
Want to get in touch with me? Questions? Comments? You can drop me a line at jonah@stomarket.com, Twitter @jschul24, or LinkedIn @jonahschulman. Talk to you next month!
Check out more content on the Security Token Group Medium, here! 🌊
