Security tokens — what can we expect in Asia in 2019?
By Andrew Wong on ALTCOIN MAGAZINE
Security token offerings — known as STOs for short — have become of the hottest topics of this year, in blockchain.
Before we talk about the future, let’s take a quick look at the recent past, and why the emergence of the STO is so important for this space.
Preceding the STO was the infamous Initial Coin Offering, or ICO. The ICO was the first instance of raising capital globally via blockchain technology — a truly ground-breaking phenomenon.
However, being highly-unregulated, ICOs promptly got out of hand.
The exuberance around ICOs resulted in a wave of cons, extreme volatility, and broken promises. Not only were many of these tokens easily identifiable as illegal unregistered securities, but many were exposed as outright scams, or simply failed projects with detached leadership.
Inevitably, regulators worldwide finally stepped in to protect the common investor, putting an end to the ICO as we knew it.
The necessity of the STO model
The inevitable intervention of regulators, however, was expected. For those with the necessary foresight, this presented an excellent opportunity to work with regulators rather than avoid them.
The result? The STO — a whole new “hybrid” model that leverages the benefits of blockchain technology, but in a walled garden environment which complies with all of the necessary laws and guidelines associated with traditional securities.
STO benefits: the best of both worlds
Being compliant with financial laws, STOs are legally able provide tangible backing of their tokens in the form of physical assets or shares in a company’s profit or revenue.
They also incorporate advantages over traditional securities such as improved transparency, automation, easier transfer of ownership, and liquidity, thanks to the magic of the blockchain.
Further, security tokens aren’t restricted only to raising capital. Already-existing businesses and assets can be tokenized and put on the blockchain, to reap the benefits of the budding technology.
Let’s take a more detailed look some of the re-introduced benefits, which went amiss in the preceding ICO model:
Easy to value
STOs go back to foundational business models that we see in traditional securities. These include things such as tangible backing, profit-sharing, and other benefits. These aspects were often stripped out of ICO tokens, in an effort to avoid regulation.
This enables an easier valuation model based on returns and underlying value, rather than mere speculation.
Investor safety
With STOs, the underlying businesses will be fully registered and compliant with local regulations. Strongly contrasting with ICOs, this will provide investors with immediate peace of mind regarding the legitimacy of the companies behind these tokens.
Further compliance with know-your-customer (KYC) and anti-money-laundering (AML) laws will also ensure that tokens are only purchased by capable investors in the appropriate geographical areas — improving investor quality and averting money laundering.
Improvements via blockchain tech
In addition to restoring the above features associated with traditional security models, we also have significant improvements via automation and transparency, enabled by blockchain technology.
Elimination of paperwork and middle-men
Being largely paper-based, the traditional ownership and transfer processes of securities remain clunky and expensive.
Migrating to a trustless blockchain system enables much more streamlined and secure processes which eliminate human error, fraud, cumbersome administrative work, and the monetary costs associated with all of the above.
Transparency
Stored on a tamper-proof public ledger, token and investor information will be easily accessible by all. This will help to more easily understand token specifics, capital management plans, distribution of holdings, and much more.
Automation
One of the biggest improvements upon traditional systems will come from the automation of processes via smart contracts on the blockchain.
Everything from token economics to ownership restrictions can be built-in to the token, ensuring seamless compliance with laws and ownership regulations.
Liquidity
The tokenization of securities and other assets will enable much wider access and easier transfer of ownership, for a significant variety of goods worldwide.
Large institutions are extremely interested (SFC, Singapore stock exchange, NASDAQ)
With no surprise, many major institutions within Asia and worldwide are showing a clear interest in the budding STO industry.
Both the Singapore Stock Exchange and a subsidiary of the Singaporean government-owned holding company, Temasek, have already reportedly invested in the area.
Over in the United States, the famous NASDAQ stock exchange released an article recently, about how Security Tokens are set to take the spotlight in 2019.
Regulatory frontrunners — Hong Kong, Singapore, Thailand
A handful of Asian states have already set their sights on regulating the space, indicating that they are ready to embrace the sector should companies be willing to accept their oversight.
In Hong Kong, the Securities and Futures Commission (SFC) has acknowledged the emergence of security tokens and other digital assets, issuing an official statement last month outlining a regulatory framework for these assets.
In this statement, they mention being open to engaging with security token exchange operators who would like to work with them. Such organisations which satisfy their requirements will be eligible for licenses to legally operate in Hong Kong.
This shows excellent forward-thinking on the part of the SFC, and shows that Hong Kong may play a major part in the evolution of the sector.
In a similar fashion, the Monetary Authority of Singapore (MAS) has already classified cryptocurrencies into three distinct categories, demonstrating that they too are ahead of the curve in their awareness and embrace of the technology.
Distinguishing between security tokens and others is important not only for regulation, but also public acceptance. This will avoid them being thrown into the same basket as ICO tokens, which have developed a rather poor reputation.
Other frontrunners to watch are Taiwan and Thailand, who have also demonstrated comparable insight in their regulatory statements.
China continues to stifle blockchain adoption
On the other end of the scale, China still appears to maintain their firm stance against everything crypto — security tokens included.
According to reports, of the People’s Bank of China (PBOC) has banned STOs, putting them in the same box as ICOs.
Huo Xuewen, Director of the Beijing Municipal Bureau of Local Financial Supervision, has been quoted as warning STO promoters to strictly avoid fundraising in Beijing, threatening to “kick them out” if they do.
New infrastructure is needed
Existing cryptocurrency exchanges and traditional platforms aren’t currently equipped to facilitate the launch and trading of STOs, which means new platforms and protocols will need to be built and adopted.
In most regions, special security-trading licenses are also required, which is leading to the creation of new platforms designed to fill this gap.
STO tokens themselves are also more specific in their restrictions and requirements, compared to the more general token standards that currently exist, such as ERC20 tokens.
A new STO token standard will be extremely helpful for meeting the requirements of the sector, as all security tokens will have very similar requirements and restrictions.
This includes the ability to mint, burn, and transfer tokens, but more importantly incorporate token functionality such as voting rights, dividend and benefit collection, and imposing regulations on ownership and transfer.
The PT20+ Standard
At Proof.la, we’ve created a brand-new STO token standard, named the Proof Token Standard (PT20+).
After thorough collaboration with developers, auditors, and legal professionals, the PT20+ protocol captures all of the above requirements, and will streamline the entire financing process.
Web and mobile-based platform
Proof will provide both web and mobile-based platforms.
The web component is designed for the creation of security tokens under the PT20+ standard, and will bridge the gap between decentralized cryptocurrencies and the mainstream financial markets.
The mobile platform will include a decentralized wallet, and enable users to invest in STO projects and connect with issuers for actions such as dividends and voting.
These aim to strip out 99% of middlemen involved in traditional finance, allowing issuers to raise capital more efficiently.
Full regulatory compliance
The Proof platform will comply fully with local regulations, involving KYC/AML compliance, whitelisting, and clawback technology.
Investors can feel confident about STO projects with regulatory oversight, creating fair financial markets.
ERC20 Compatible Protocol
The PT20+ Standard is an ERC20-compatible security token protocol, allowing it to seamlessly interact with existing platforms and smart contracts, if required.
Looking into 2019
The future for security tokens is looking extremely bright, with companies already lining up to launch their token offerings.
Regulators across the globe are welcoming the notion of regulation-compliant tokens, with some countries clearly already setting up and investing in infrastructure to support the ecosystem.
Countries in Asia such as Singapore, Hong Kong, Taiwan, and Thailand appear as they will be excellent first-movers in the space, and may set many precedents and standards for the infrastructure required to facilitate the STO movement.
With such a range of benefits associated with the “blockchainization” of traditional assets, it may only be a matter of time until we witness a mass migration to the security token model.
Before moving on, make sure to press follow, leave a clap or 46, share today’s highlight and if you missed the last article, click here.
Read about the Altcoin Magazine Mastermind Event here.
Follow us on Twitter, InvestFeed, Facebook, Instagram, LinkedIn, and join our Discord and Telegram.
The purpose of ALTCOIN MAGAZINE is to educate the world on crypto and to bring it to the hands and the minds of the masses.
