Tokenized Securities and the Emerging Token Economy

in Digitalisation

By Blockchain Worx

Today, we are witnessing the dawn of the global era of tokenization. It has silently but surely started impacting various aspects of our lives, whether we choose to accept it or not. One area that stands to benefit immensely from this formidable form of new-age disruption is the world of Financial Investment Services and Capital Markets. This year is quickly shaping up to be the year we put real-world assets into fractional ownership on the Blockchain, using smart contracts.

While the token economy took its own time to kick-off, even though the Bitcoin was introduced as early as in 2009 – the exponential growth in interest over the last couple of years comes as little surprise to anyone. Trading in cryptocurrencies has increased substantially in recent years.

The underlying blockchain technology is touted to be one of the biggest factors contributing to the success of cryptocurrencies. With its inherent capability to facilitate tokenization of financial assets and to allow transactions to be carried out seamlessly across the globe, in real time, and in a decentralised, secure, transparent and tamper-proof manner, blockchain has – not surprisingly – found multiple alternative use-cases, well beyond the world of digital currencies.

Within the first five months of 2018, startups worldwide have raised over US$13 billion by issuing new digital tokens, and there are well over 1,300 different digital currencies today. Switzerland, USA and Singapore have launched over 500 initial coin offerings (ICOs) within H1
of 2018.

Several crypto asset hedge funds have sprung up, increasing from about 11 in 2016 to over 80 in 2018, and managing around US$2 billion in capital. Governments too have started to take notice – Dubai and Singapore are exploring the potential of tokens and digital currencies, while Venezuela has raised US$5 billion via its oil-backed cryptocurrency, the Petro (PTR).

The United Arab Emirates (UAE) has recently announced plans to introduce new rules that would permit ICOs as an approved fundraising mechanism for domestic companies.

However, we are only at the beginning and are yet to realise the full potential of the emerging token economy. Tokens could represent everything of value – physical goods, loyalty points, real estate, creative productions (works of art, music, etc), service leases and time-shares, securities, and a lot more.

Security tokens, or tokenized securities, are investments that represent fractional ownership of real-world assets (stocks, bonds, real estate, works-of-art, etc.) on the blockchain, powered by smart contracts, and are subject to regulation under similar security laws as traditional finance products.

Security and asset-based tokens offer a decentralised and democratised platform for conducting peer-to-peer (P2P) transactions between owners/consumers and businesses. Eliminating the need for a central institution to oversee and manage transactions of such security tokens can greatly help reduce transaction fees and settlement times, automate several functions and processes, and increase transparency in the dealings.

Security tokens will also help unlock enormous pools of liquidity in the system, creating vibrant secondary markets for previously illiquid assets.

Greater visibility and control over individual investments, large unlocked pools of liquidity and improved settlement times will increase interest among investors and attract a larger, global and a far more inclusive and diverse customer base for security tokens.

Being consensus-driven, such security tokens built over blockchain platforms will help remove the middleman and greatly reduce costs by eliminating intermediaries like the investment banks, venture capital firms and private equity establishments.

This will not only democratise the investment and funding environment, but also diminish friction and reduce the incidence of corruption by manipulating the system.

Security tokens have begun to grow in popularity and are starting to gain momentum. Early movers have already started to tokenize equity, maritime assets, real estate projects, and more.

The next wave of digital exchanges designed to support trading of security tokens are already here, and it makes them far more versatile, moving way beyond cryptocurrencies.

Given the many advantages of tokenizing securities, what we are currently looking at is just the tip of the “Tokenization Iceberg” and there are a whole lot more to come.

Blockchain Worx offers a turnkey white-label securities tokenization platform and a digital asset marketplace. The solution allows institutions to tokenize securities and other real world-assets in a secure and compliant manner. It also offers investors a disintermediated digital investment marketplace that’s secure, transparent and inclusive. To learn more and test-drive the demo platform, visit www.tokenotic.com

 
 

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