This is the second and final part of an article that outlines some perspectives about security tokens for 2019. As we discussed , the points explored here are not intending to be grand-predictions about the market but rather short term developments that are likely to take place given the current state and evolution of the space. Let’s continue through our list: in the first part of this article 11)More Vendors Jump Into Token Issuance but we Start Differentiating Winners from Losers I’ve been vocal before about the fact that security token issuance is likely to get commoditized in the long term. However, token issuance platforms still have a long runway ahead of them before the possibility of commoditization appears on the horizon. The low technological entry point for security token issuances have triggered a lot of startups to launch tokenization platforms causing a lot of noise in the space. That trend is likely to continue in 2019 but we are going to start seeing 1–2 clear leaders in the space with a visible technological and go-to-market edge over the competition. Here is the thing about commoditized markets: they tend to only produce a very small number of winners. We are likely to see who those winners are going to be in 2019. 12)The Ratio Between Tokens Issued and Issuance Platforms Increases In response to , a few people expressed their surprised that I didn’t mention that the number of security tokens is going to grow by a significant order of magnitude in 2019. My initial answer was that I believe that observation was pretty obvious and not controversial at all to be listed in the article. However, thinking about it a bit, there is a more interesting statistic that will illustrate the development of the security token market in 2019. The ratio defined by [NUMBER OF TOKENS ISSUED]/[ISSUANCE PLATFORMS] is likely to increase drastically in 2019. That means that we should in fact expect a larger number of security tokens to hit the market in 2019 but the number of platforms that will issue those tokens is going to remains relatively small (I would say in the 3 to 5 range). the first part of this article 13)Liquidity Becomes an Even Bigger Problem and ST Liquidity Pools Emerge The increasing number of security tokens to hit the market in 2019 and the very rudimentary state of security token exchanges will increase the challenges around liquidity in 2019. As a result, we might see creation of the first wave of liquidity pools focused on security tokens. Even though there are plenty of crowdfunding liquidity pools that are dabbling into security tokens, the integration into the crypto-securities lifecycle remains very basic. 14)Disclosures, Market Intelligence and Research Gain Relevance Without information, security tokens are going to have a hard time becoming a relevant asset class. Disclosures, data intelligence and high-quality research are key elements to overcome information asymmetry in financial markets and security tokens are no different. The increasing number of security tokens to hit exchanges is going to influence the creation of disclosure protocols, market intelligence platforms and analyst communities that can help to establish fairness in this new market. 15)Venture Capital Reimagined When I think about the industries in which security tokens can have a quick impact, I keep going back to venture capital(VC). The VC industry hasn’t really changed much since its inception in the late 1940s. Tokenized equity, programmable disclosures, automated cap table management, access to secondary liquidity vehicles are some of the security token artifacts that new VC funds can use to be more agile and competitive with established players. I hope we see more of this in 2019. 16)Compliance Moves Partially On-Chain The friction between compliance and decentralization is one of the most passionate debates in the security token space. While the first generation of security token platforms are relying on centralized and often off-chain vehicles for compliance and regulation, some of those vehicles must transition to on-chain equivalent if we really hope to unlock the value of programmability in the space. I clearly understand that not all compliance can be programmable in the form of smart contracts, but I also believe that assuming the extreme opposite position is likely to hurt the security token market in the long term. 17)Privacy Becomes Part of the ST Discussions Today, privacy requirements are largely absent from the security token space but that seems unsustainable in the long run. Privacy is a key compliance element on many regulated industries and, without a doubt, one of the elements needed to achieve mainstream adoption in the crypto-securities market. Furthermore, the crypto space already includes solid privacy protocols such as , or . Is not out of the question that we will see some of those privacy mechanisms adopted within security token protocols in the upcoming year. zk-SNARKs zk-STARKs secure multi-party computations 18)New Forms of Custody and Insurance Custody and insurance are often used as indicators of the immaturity of the security token space. While I understand that custody and insurance represent a confidence factor for large institutional investors, I think we are making a mistake trying to adapt traditional custody solutions to crypto-securities. In other words: I believe security tokens require a new forms of custody and insurance that are simpler than traditional methods and that take advantage of the immutability and programmability of the blockchain. In a world in which we have consensus mechanisms, cryptographic footprints, real time settlements and programmable securities, paying a fortune to a traditional custodian for using the same mechanisms used to protect treasury bonds seems ludicrous. 19)End-To-End Tokenization Solutions Win in 2019 The end-to-end vs best-of-breed solutions is a friction of any technological market. In the security token space, we have tokenization platforms that abstract most of the important aspects of the lifecycle of crypto-securities and also an emerging group of platforms focus on specific areas such as cap table management, liquidity or secondary markets. Following theory, end-to-end solutions tend to be more relevant in early technology markets and I think that dynamic will hold true for security tokens in 2019. Geoffrey Moore’s Crossing the Chasm 20)A Foundation-Building Year There is no lack of predictions of security tokens taking over the market in 2019. I am not very good at predictions but I am going to take the contrarian argument and say that 2019 is going to be a year focused on infrastructure building and continuing the path towards better security token projects but we shouldn’t expect many splashy market development. Potential downturns both in public equities and in the crypto markets, the limited number of exchanges, the missing foundation elements in key areas such as liquidity or compliance and the small sums of venture capital allocated to security tokens are some of the factors that are likely to influence the security token market into an infrastructure building stage. These are some of my observations about the security token market in 2019. Take these as basic analyses based on the data signals we have today but chances are that many of them will be proven wrong in the upcoming year. As the great New York Yankees catcher and pop-culture philosopher once said Yogi Berra “It’s tough to make predictions, especially about the future”. Happy 2019!

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