The following opinion piece on token-as-securities was written by Benjamin Pirus, a crypto trader who has written many articles for different ICOs, crypto news outlets, and clients.
2017 was a special year in many ways. Not often in life are there opportunities to invest in an asset and see a profit increase of 1000% (or higher) in the span of a few days. Yet, this was common on and off for much of 2017 in the cryptocurrency space. Some argue that these days are now gone forever. However, there may be a case for one more exponential bull run in crypto, with tokenized securities leading the way.
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Speaking objectively, 2018 has been a difficult year for the crypto space, with an overall market cap crash of over 75%, and regulatory fears and misunderstanding sprinkled throughout the year, likely keeping the market from a comeback. Crypto seems to have arrived at a crossroad, with many regulatory decisions to be made ahead.
It seems as though the market cap will not reach new highs until several regulatory issues are sorted out and clarified. Tokenized securities will bring more clarity and stability to a market that currently needs more investors; investors that will only join in when they feel their investments will be safe.
A Question of Value
Many crypto investors have left the space with feelings of contempt. This can be in part attributed to the fact that cryptocurrencies are not currently backed by anything. The crypto market sees price action almost entirely based on speculation. When a person buys an altcoin, there is no certainty that price will fluctuate based on the success of the underlying company.
Ripple is actually very well known in this aspect. Yes XRP and Ripple (the company) are connected. But XRP’s price action does not reflect the success of the Ripple company – a classic example of most crypto assets currently.
Right now, altcoins are mostly utility tokens, with various roles in the projects they’re connected to. Their price valuation should be based on the demand for the tokens to be used for their intended purpose in said system. But at present, prices are speculative and not based on use.
For the above reasons, many projects in the crypto space have had strong hype periods, (leading to the above dramatic price rise) which were then followed by the coin or token being forgotten, losing value down the line, possibly never to return to its former glory.
An Answer To The Problem
Tokenized securities provide an effective solution to current problems. Securities are regulatory compliant assets such as stocks, bonds, or real estate, that have value from an underlying asset, company, etc.
Take stocks for example; if an investor holds stock in a company, he or she essentially owns part of that company, and sees profit or loss based on the performance of the company. In this traditional system, it can be easy to see how stocks would hold their value better than most cryptocurrencies that have no underlying value.
But why the need for tokenization of these assets? Because it provides liquidity to a sometimes illiquid market. The ability to fractionally invest in certain assets opens those assets up to a whole new number of buyers that can now afford to invest.
Tokenization also enables person-to-person transactions, without the need for involvement of a centralized entity or exchange. Vinny Lingham (co-founder and CEO of Civic) predicts that “security tokens exceed other cryptos in market cap within 36 months”.
Tokenizing securities combines the benefits of traditional finance, with the benefits of blockchain. Traditional finance is stuck in a box in some ways, and tokenization helps to remove those walls and limits, providing new potential. Anthony Pompliano, founder and partner at Morgan Creek Digital, tweeted (5/16/18) that “Every current security is going to become ‘digitized’ via security token. The utility market is 9 years old, only $ 400B and shrinking. Security market will be in trillions within 3 years”.
The tokenized securities space is in its infancy. But many companies are moving fast to bring this potential to reality. Desico for example, is currently building a platform for the issuance and trading of tokenized securities, in full compliance with EU member state law.
Desico is also great cause for excitement because they will allow retail investors to gain involvement in the tokenized security space (if their region permits). This may be a factor that will lead to the next bull run and explosive buyer exuberance, as was seen in crypto in 2017.
Desico co-founder Audrius Griškevičius explains: “Currently when a promising company raises capital it sells its equity to institutional investors like VC, while retail investors have access to invest in to it when it goes IPO. DESICO will open up an opportunity for retail as well as institutional investors to invest in to promising companies at an early stage”.
No one is certain when, or how fast the innovation of tokenization will takeover to gain mainstream adoption. Judging by how fast the cryptocurrency space moves, it will likely be sooner than later.
Do you think “Security Tokenization” will help spread adoption and interest? Are most ICO projects utility tokens? Let us know in the comments section below.
Image courtesy of Shutterstock.
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