Remember tokenized
securities or securitization with tokens on blockchain?
With the entire
year in crypto defined by a maelstrom of projects embarking on decentralized
finance (DeFi) aspects to their products, it can be easy to forget that
previous advancements in blockchain-based technologies have continued to make
great headway in terms of adoption and application.
Security tokens and
tokenized securities
In 2019 especially,
with greater regulatory scrutiny on blockchain-based crowdfunding in the shape
of initial coin offerings (ICOs), many projects sought to reconcile crypto’s
much-maligned aspect of democratic fundraising with increasingly unforgiving
regulatory compliance. Hence the proliferation of Security Token Offerings
(STOs) that meant to replace ICOs as legitimate, law-abiding instruments to
raise funds and issue securities through blockchain-based tokens.
It’s important here
to distinguish between security tokens and tokenized securities -- often used
interchangeably, but hardly the same thing. In the former, blockchain
technology is used to create new tokens that is a representation of real-world
“securities”, ie. crypto assets that share some qualities as securities in the
traditional sense. In the latter, we are talking about existing assets
(securities) in the real world, that are expressed digitally… wrapped, if you
will, in a token technology.
An overlooked
breakthrough
Put in another way,
security tokens create a token and create securities, but tokenized securities
simply digitalize existing securities. That really is something that solves a
major problem with traditional securities, which makes it somewhat surprising
that it hasn’t been picked up more.
Tokenizing
securities immediately helps with widening the market and improving their
liquidity. In addition, it’s not a new product so it isn’t so much something
for regulators to look at, it simply is a new, digital channel for
distribution, which actually makes tokenized securities simpler to approve.
They’re not just an
idea, they’re already here.
Because tokenizing
securities are comparatively simple to do, there actually have been quite a
number of them entering the market. Last year, we saw traditional funds like 22X Fund put together a tokenized fund (with
money raised through an ICO in fact in 2018) to invest in 22 startups. But
SPiCE will argue it was even earlier, as the VC fund set up in 2017 and lays
claim to being the first tokenized VC fund able to offer immediate liquidity
for venture capital -- which otherwise takes years to liquidate!
This year, AllianceBlock, which is building the “world’s
first globally compliant decentralized capital market” partnered with another
blockchain firm AIKON for secure blockchain-based
identity management service -- making decentralized finance services accessible to all, and
securing that access with the blockchain.
The data already
shows that the coming years will see securities very soon fully digitized and
empowered by blockchain. From owning a small share in your favorite soccer
club, to fractional ownership of pizza restaurants in a country halfway around
the world from you, blockchain and tokenized securities are spelling out a way
for $256
trillion worth of real-world assets, mostly illiquid as physical representations, to
go digital.
As they say in
blockchain, tokenized securities are a matter of when, not if.
This article originally appeared on aikon.com
