Crypto Equities: What are security tokens and why are they important?
Security tokens are financial securities compliant with regulations and are backed by assets in an underlying company or project. If you’re a non-seasoned crypto enthusiast, you may be saying “huh?” So, let’s put this in simpler terms. They are digital assets (something of value) that represent equity shares in a company, for example. To simplify even more, if cryptocurrencies are like Bitcoin and considered “programmable money,” then security tokens are considered “programmable ownership.”
Security tokens are digital shares on decentralized exchanges that are better conduits for financial transactions.
Advantages of tokenization include increased investor liquidity, lower issuance fees, fractionalization of assets, and arguably the greatest benefit is security tokens provide access to a global pool of capital. By removing borders and trading tokens internationally, they become more attractive to investors and priced at a global market value.
So, what’s the buzz and why are security tokens important?
Huge market — The CEO of Pantera Capital, Dane Morehead, said that securities tokens are projected to have a market cap of $10 trillion by 2020. The financial projects of this market are incredible, possibly even surpassing the astounding numbers that were once achieved during the dot-com boom from the early 1990s.
An Improved Securities Market — Tokenized securities are the future because they can be traded 24/7 on a global marketplace, increase transparency, and remove many intermediaries saving issuers money. This SEC compliant offering is appealing to retail and institutional investors for its established structure and technological evolution.
Here come the regulators — In 2017 and into 2018, ICO funds poured in at record levels and the market saw tremendous growth. The simplicity to raise capital via this method was a big driver of said growth. However, it came with its own set of problems: scams, extreme volatility, and high risk due to the lack of underlying asset. Essentially, the market was tainted by some bad actors. Combined with the market growing so quick, regulators came in and began to subpoena companies that went through ICOs labeling nearly every cryptocurrency and token a security. Although this first phase came with a few issues, it successfully paved the way for security token market to be arguably the best way to raise money while providing liquidity to investors.
Okay, I get it, they are important and the future. What other forms can these digital assets represent?
The short answer: nearly everything. They commonly represent a relative right against a third-party to receive an asset in some form. At Crypto Equities, we focus tokenizing equity, funds, debt, derivatives, and real estate. At the end of the day, these tokens constitute an investment contract, and the main reason for the contributors to purchase the tokens is the anticipation of future profits in token price appreciation and in dividends or a revenue share.
The innovation capital business is broken and traditional finance is slowly being revolutionized, disrupted and democratized. The traditional (IPO) way is expensive, time consuming and limited to a few elite locations, while leaving the liquidity decision in the hands of major stakeholders. Crypto Equities is a full-service solution launching tokenized securities.
A new era is upon us. It won’t happen over night, but we believe we financial securities are transforming and will be transacted on blockchain. This freedom and disruption of old models will lead to a large shift of wealth, and maybe the largest of our lifetime.
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