Tezos continues to Advance Forward in the STO Space
A prospective outlook at Tezos and how it’s performing in the security token issuance space
As a follow-up to my previous post where Mason Borda of TokenSoft was kind enough to share a few of his thoughts on the value proposition of Tezos, this post will serve as a general update since that point in time — as much has changed since late November 2019.
Recently, we have seen a security token management and issuance platform transition over from Ethereum to Tezos. The rationale behind Vertalo’s transition was as follows:
The fundamental limitation that makes Ethereum a painful choice for security tokens can be expressed as the friction between transactions and asset ownership. Ethereum is a very powerful platform that is fundamentally optimized for one use case: transfer a crypto-asset from point A to point B. The behavior of security tokens, on the other hand, is fundamentally dictated by dynamics related to asset ownership that have little to do with transaction mechanics.
This move comes in line with the exact culture Tezos is emulating in prioritizing and developing the STO space. Tezos is deliberately focusing and cultivating the security token issuance landscape, bringing the necessary tools and infrastructure to make Tezos a warm home for the securities market.
With a formal means, decided upon with token holder voting by which the protocol can be amended and upgraded — features such as scalability and transactions per second (TPS) can be increased through porting existing enhancements onto the protocol. Additionally, other features such as formal verification and secure custody make Tezos an attractive platform to conduct an STO on. The value proposition present for conducting an STO on Tezos lies within it’s high-value, high-complexity.
Current Planned STO’s and Infrastructure
Currently, over $3B in STO’s are slated to take place on the Tezos protocol. Infrastructure around the STO landscape is being developed and security token issuance platforms such as TokenSoft will be utilized in an upcoming STO — Silicon Valley Coin.
- Elevated Returns and Securitize — Are seeking to conduct and deploy up to $1 billion worth of real-estate STO’s on the Tezos protocol. Expected launch of the first deal of $77M real-estate backed security tokens is slated for April.
- BTG Pactual and Dalma Capital — Are seeking to use the Tezos blockchain for conducting up to $1 billion worth of STO’s.
- tZERO and Alliance Investments — Have announced their plans to tokenize the first of their total $643 million worth of STO’s on Tezos with the River Plaza located in the UK.
- Fundament Group — Has announced a strategic partnership with the Tezos Foundation to develop digital securities infrastructure.
- Equisafe — Will develop the NyX Standard, “a set of smart contracts on Tezos blockhain, audited by institutions and open sourced on an MIT license”. Launch of the NyX Standard is slated for this year.
- Vertalo — A security token management and issuance platform has transitioned from Ethereum to Tezos.
- Andra Capital and TokenSoft — Utilizing TokenSoft’s security token issuance platform, Andra Capital is seeking to raise up to $1 billion in it’s Silicon Valley Coin STO which represents interest in the Andra Capital Open-Ended Fund. The fund is currently valued at $500 million.
Key Insight From the Tezos Foundation on the STO Market
To further grasp the current developments and landscape around the STO space not only for Tezos but as a whole — I decided to reach out to Ryan Lackey, Chief Security Officer at the Tezos Foundation. Below in bold were my questions for Ryan and his responses are highlighted in quotation.
In terms of infrastructure and regulatory processes, where do you see the STO market at this present time?
In terms of infrastructure and regulatory process, it’s still pretty early days for the STO market, but there’s a lot of interest on both the issuer side and by other financial intermediaries (and regulators) in doing it well.
Some jurisdictions (Thailand, Singapore, UK) are moving pretty quickly — Thailand has great regulations and a very forward-thinking regulator, Singapore as always is very business-focused and has been revising regulations (including a new Payment Services Act) based on the needs of both the market and consumer protection, and the UK has been very good at running a sandbox, allowing experimentation in lower-total-value deals.
There are also a lot of ways to make STOs work under existing regulations, and countries with a history of favorable regulations toward business have an obvious lead in doing STOs — but there’s also a potential for countries with a less-developed financial industry to leapfrog by adopting the best regulations globally.
Infrastructure is also evolving — there are some important early players like Securitize and tZERO who are continuing to evolve, and newer entrants like Tokensoft, Fundament, and Globacap who are moving quickly as well.
What’s great is they’re all building on top of Tezos, and we’re excited to see how the marketplace evolves. One of the trickier elements is the regulated STO exchange, and we’re very excited about the imminent launch of Thailand’s Elevated Returns/ER-X.
There have been several STO’s announced to be issued on the Tezos blockchain, including the recent announcement of Andra Capital’s upcoming Silicon Valley Coin (SVC) STO. In your opinion, what’s been the prevailing factor at securing so much interest in Tezos for STO’s?
There are a few reasons Tezos has been particularly popular with STOs, especially large-value deals like Andra Capital, Fundament, BTG Pactual/REITbz, Alliance Capital, and Elevated Returns.
One, the Tezos platform has some unique technical features — great, secure smart contract languages, governance providing long-term evolution and stability, and a well-functioning Proof of Stake network.
Two, Tezos has great developers — you don’t need every developer in the world on your platform to build STO utilities and contracts, but you do need a sufficient number of very good developers. Third, Tezos ecosystem participants (Tezos Foundation, TQ Tezos, Nomadic Labs, Cryptium Labs, and a large number of development entities and tool creators) have been actively working with STO platforms, exchanges, and other clients to make everything work.
Where do you envision the STO market as a whole within the next five years? Decade?
I think over the next 10 years we’ll see STOs be the default vehicle for some specific niches of assets — real estate seems to be a particularly strong area, but there might be completely new kinds of financial assets which are only possible in an STO market.
I think we’ll increasingly see STOs as an option in a variety of asset classes and jurisdictions, but it might take more than a decade before some of the best-functioning current markets shift to STOs. However, the financial marketplace is big enough that even specific types of assets are themselves huge markets, so I think there’s a lot of potential here for a large ecosystem to develop.
If or rather when STO’s gain increased traction and adoption it could lead to opening the floodgates for numerous investor classes, from retail, traditional finance, and more. There is a substantial amount of potential for the securities market and the seeds are being planted today by Tezos for a burgeoning market.