Some people say that utility tokens and ICOs paved the way to achieve a quite large global crypto community, which can be the first investors to kickstart the next step: security tokens. Whatever market sentiment we are currently experiencing in crypto, the main topic of 2019 will be about security tokens gaining ground.
Security tokens enable people to verify ownership (or a relation to) physical or digital properties on blockchain.
Basically any kind of asset can be tokenized, whether it’s currency, bond (loan), equity (stock, share), commodity (gold, oil, wheat), or real estate.
What advantages security tokens provide?
- Transparency through automatizations
Coding the terms and conditions in a smart contract, the governance of the asset (e.g. a company, trust, etc.) can be automatic and transparent to the token holders. Most companies provide terms and conditions on their operations, but you need to trust them that they are really working that way. In case of smart contracts, these regulations are coded, you don’t have to trust the company. - Easy to buy/sell/transfer
You don’t have to hold any physical print of the asset, as your tokens represent it, which make it easy and quick to buy/sell or transfer to anyone, just like you do with cryptocurrencies. - Global access to investors
While in traditional securities markets many times it’s difficult to trade securities of other countries, with tokenized securities basically it’s all the same. - Liquidity
The liquidity of most of the traditional instruments is limited (e.g. selling shares in a startup, or selling debt). Crypto gives the possibility for crypto exchanges to be the platforms where participants have access to many investors, boosting liquidity. - 7/24 markets
Traditional exchanges are usually open in business time of their time zone vs crypto exchanges, which are open everytime. - Fractional ownership
in certain assets, the minimum quantity you can buy often limits many people to enter. You can’t buy a 1/10th of a real estate, or 1/4th of a cattle. Tokenized assets make it possible.
Are security tokens legal?
This is the most difficult, but most interesting question. Security tokens can be compliant to regulations easier than utility tokens, as securities regulations already exist.
The ideal setup would be if smart contracts would be entitled to make completely automatic governance (signing contracts, owning assets, etc.).
Until it’s possible legally, intermediaries will be needed to represent the token holders.
Example: An intermediary (e.g. a special purpose vehicle, or SPV) owns the shares of a company on paper, and signs a contract with the token holders, that their tokens represent a certain percentage of the shares the intermediary owns. This connection can enable token holders to gain other types of returns such as revenue share or dividend as well.
How security tokens can make a revolution in agriculture?
In most countries of the world, raising capital or taking loans in agriculture (especially for smallholder farmers) is quite cumbersome. Limited or no access to financing, strict conditions, lot of paperwork and slow processes filter out most companies, while they would need capital in several occasions: liquidity, investing in machines and technology, invoice factoring, financing shipments, etc.
With blockchain and crypto, the technology is ready to make a revolution in this field.
The necessary elements are:
- Financing models
Financing models with proper credit risk management procedures and control possibilities. Should it be direct or value chain financing depends on the use case. - Legal structure
An SPV based intermediary, which acts in the name of investors in cases which are required by the law in each country it operates. - Technology
A portal and smart contract to manage investments in crypto, a token for clearing and proof of ownership, as well as supplementary systems (e.g. a traceability system) to control usage of the finances. - Agricultural companies
Access to agricultural companies which need money. - Investors
Access to investors (private or institutional) which are interested in agricultural financing.
The first two elements are the most important. A structure, which is accepted by the regulators is naturally essential. The business model has to focus on providing as much protection for the investors as possible, while being aware that smallholder farms usually can offer little to no traditional collateral.
If we combine more elements
- tokenized livestock and produce (to provide collateral)
- blockchain based traceability (through TE-FOOD to verify credibility and credit scoring)
- crypto investment portal (to access financing, and carefully manage payouts)
- education (through grants to improve productivity)
- business analytics (through TE-FOOD’s Deep Data Analytics to improve productivity and profitability)
we could have a platform of tools which work in synergy to provide the next level of agricultural financing.
We strongly believe that blockchain can revolutionize agricultural financing all over the world. Problems, which haven’t been solved during the last several decades can be solved in the short future. The technology and regulation is underway, and the demand is tremendous.
TE-FOOD is the world’s largest publicly accessible, farm-to-table fresh food traceability solution. Started in 2016, it serves 6000+ business customers, and handles 400,000 business transactions each day.
Website: www.te-food.com
Telegram group: https://t.me/tefood
Twitter: https://twitter.com/TE_FOOD
Reddit: https://www.reddit.com/r/TE_FOOD/
