Security Tokens stand to usher in the next wave of blockchain capital.
As blockchains mature into more scalable, enterprise-level solutions, it seems that almost all parts of the financial industry could shift along with it. With this in mind, what will our security token future look like?
Here are five predictions:
With a broader fundraising base, early liquidity, streamlined regulatory requirements, and far lower issuing costs, tokenized securities offer benefits that an IPO simply cannot.
As the ostensible risk of this new fundraising mechanism becomes familiar to mainstream investors and financial organizations, the industry will adopt Security Token Issuances (STOs) quickly and en masse. Existing companies in need of capital will begin to seriously consider STOs as a financing option. The sophistication of the issuances and investors will continue to increase as well.
A range of service providers for the security token market will emerge soon. STO investment advisers, insurers, custodians, I-banking, lenders, all of these fields will grow into multi-billion dollar opportunities with at least the same level of complexity as the traditional securities markets of today.
At the outset, margins for these service providers will appear massive and then moderate as competition increases. Selling “picks and shovels” to this emergent ecosystems, though not sexy, represents a serious opportunity.
The ability to fractionalize security investments will allow businesses to offer unique derivatives that suit the investment profile, personal preferences, and trends of the moment. Increased access to opportunities and more personal investment options will benefit average investors.
An individual could hold an international portfolio of quality investments only accessible to private equity firms today. Security Tokens will allow robo-advisors to continue to flourish and will accelerate their growth.
Businesses will find solutions for visualizing and representing tokens and their functions in more meaningful ways. The ability to explore transaction history, access features, and use tokens day-to-day will improve as security tokens usher in mainstream institutional capital.
Along with this, the ability to move across security tokens, currently facilitated by secondary exchanges, will become simple enough for mainstream investors to use. An industry of designers and strategists will emerge to support the UI/UX of future security tokens.
Of course, the new capabilities these tools will put into the hands of investors and issuers will prove quite challenging for traditional securities regulators. The digital nature of tokenized securities also makes them hard to classify.
Security tokens are ultimately software and can offer the same breadth of functions and flexibility as any other software company. The ability to create hybrid-type investments vehicles will make the strict categories seen in regulatory classifications today incapable of adequately accounting for the types of security and quasi-security offerings that emerge. Countries that can successfully balance new regulation with financial protections have much to gain.
As the alliances of companies and investors organized around the security token ecosystem amplify network effects, the energy and opportunity in this space will draw in additional capital, competition, and customers.
Rather than IP, first-movers that can grab market share and establish robust networks will prevail. Companies capable of agile development methods and intelligent risk-taking will outpace those that do not. Not only will these changes come to pass, but it will happen much more quickly than you might think.
Alexander S. Blum has been working in blockchain for the past 5+ years, advising VCs, PE groups, Fortune 500s, and blockchain start-ups on financial and technical strategy and development. He has developed a cryptocurrency mining operation, an AI-Crypto Hedge Fund, and led multiple ICOs, including Science Inc. and Sweetbridge.
Prior to this, he served in the Peace Corps in Panama where he started an indigenous artisan crafts co-op as an Economic Development Consultant. After living without phone or internet for two years, he started and grew a telecommunications service providing coverage to rural areas in Latin America. He attended Tufts University and MIT. He’s also the founder of Atomic Capital. You can follow Alex’s work at — @alexandersblum and @Atomic_Capital