National Bitcoin
Published in

National Bitcoin

Tokenisation of Securities is an Overpriced Complexifier©

Just can’t wait for the bright future of digitised capital market to come. In the boring present reality, tokenising:

Present State of Securities Tokenisation Looks Upside-down because of Two Disproportions

For reasons yet to be better understood, it has become common in this crypto culture to sell salacious paradoxes.

Professional tokenisers admit flying cars have a long way to go but they still pitch parking tickets to the roofs of skyscrapers.

While the tokens’ role is purely secondary and the old legal framework continued to define 100% of the exercise, tokenisation is marketed at the forefront, without pukka efforts to produce a new meaningful operational layer.

[1]

One imbalance is that legal costs are disproportionately higher than the same for tokenisation. It’s like a grotesquely luxurious villa on a small plot of land.

In the current state of affairs, an expensive full-scale legal setup is an unneeded risk. The entire security token contrivance remains untested, so errors planted in “immutable” software could cost you a pretty penny.

For now, it’s enough if you tokenise a simple and inexpensive equity crowdfunding contract. The token-seeking audience doesn’t really care:

— Is it legal?

— Why, of course.

— Fine, wrap it up.

[2]

In a way reminiscent of ICOs, securities tokenisation is ridiculously overpriced. The value one can extract from it doesn’t even remotely reflect the asking price. Discounting would make little sense here, though (see [1] above); however, the product upgrade on the other hand, would.

Security tokens are shamefully primitive, insulting the very idea of capital market digitalisation. Tokens can only track who sells to who and not even all of them can pay dividends.

Not embarrassed by this trivial agenda, the STO industry commits another sin by engaging into standards war!

Crypto is all about interoperability and linking fields that incumbent tech can’t or don’t want to link. Where centralised frameworks clash to compete, cryptos can manage to find the way to proliferate, for each.

The tech to provide an overlay layer between existing blockchains through pegged sidechains exists. There’s no need to sacrifice compatibility with anything — native representation of BTC, ETH, and ERC-20s is already in place. Some designs are advanced enough to allow developers to abstract away the complexity from using different protocols and concentrate on delivering an adequate user experience in which all blockchain projects are severely lacking.

One avenue in which ST standards aficionados largely dumb down the technical opportunities is DAO. In addition to facilitating speculation (which isn’t even in place yet), tokens could:

Relevant Socio-economics is Ready: it’s Heated and Fertilized

Companies are atoms of the economy, but only part of their valence is used in interactions obedient to the laws of the market. Inner-company non-market or semi-market forces play an important role as well — think compliance departments, trade unions, post-sale relations.

Before the tokenisation era, minority shareholders or creditors used to only unite in the case of a serious trouble. Barriers to start-ups and costs to run a formal community are high, so only a threat of substantial financial loss was a strong enough stimulus to initiate a group. And, naturally, issuers hate investor activism.

But times are a’changing.

It takes a while for a mainstream entrepreneur to understand and accept that nothing on the Internet can be moved without a third party who is almost always interested in fees and manipulation, except for certain classes of crypto-tokens. But when one does understand how this unique digital substance can be transferred hand-to-hand without intermediaries, like physical cash, the attitude changes drastically.

A blockchain-based DAO imposes almost no maintenance costs, which is a strong enough factor in itself. Add here the avalanche of enlightenments on the magical powers of tokens and investor communities mushrooming like after the rain, even around small and medium-sized issuers. Importantly, this will mostly happen with a positive agenda — to help the company grow its revenue and flourish the token.

Putting Horse before Cart with DAO

The decentralized autonomous organization idea had a nasty false start two years ago (TheDAO), but it surely is one of the very few meaningful applications in the entire decentralisation paradigm. Either DAOs take off or the blockchain/DLT universe itself will implode.

DAO circumvents the de-facto prohibition of uncontrolled communities. In many jurisdictions people can’t form unregistered groups [aka secret societies], especially if there’s a value flow inside them. In some countries, people can’t even physically gather in public places without getting permission beforehand. These sort of “rules” should and will obviously be broken. That’s just what decentralisation is for: to break the rules. The ability to break unfair and wrongful rules is a perfect marker for potential success of a decentralised project.

Remember the explosive growth of BitTorrent and why we have great TV series by Netflix now? No modern DApp is any near to that. Even Bitcoin is truly triumphant only where it explicitly breaks the rules: on the black market and in shit-countries with shit-currencies. In developed countries, there’s no ban on surrogate money if you don’t call it the name an existing fiat uses. BTC doesn’t really compete [to death] with USD not because USD is so great, but because BTC simply doesn’t need to compete with it. Where Bitcoin legally coexists with fiats, its success is modest.

Despite the $14B+ invested in DApps and smart contract platforms, the typical DApp has only hundreds of daily active users. While literally all blockchain-based decentralisation concepts are missing mass adoption, this seems to be the perfect moment to revive the DAO idea, particularly with a focused implementation.

What’s Next? Programmable Legal Entities

In liberal countries, DAOs will probably be regulated in a way similar to self-driving cars. That includes:

In the process of token-based digitisation, capital markets aren’t likely to remain operating exactly the same legal arrangements as now. Otherwise, no significant improvements are to happen.

Large jurisdictions will start associating DAOs with new, more flexible, programmable legal entities, similar to Maltese “technology arrangements”. It is those perfectly legal DAO tokens that will outgrow the functionality of being mere symbols. Not only will they bind a traditional issuer to the securities it issues, they will serve the company development.

________

--

--

Get the Medium app

A button that says 'Download on the App Store', and if clicked it will lead you to the iOS App store
A button that says 'Get it on, Google Play', and if clicked it will lead you to the Google Play store
Lex Ionin

When what I love comes to me, I meet it with serenity. What I don't love, I trash with angry trolling.