The rationale behind the recent launches of security token platforms and protocols. What is a “security token”? That could extend to various assets — real estate, trusts, any LLC, , precious metals, carbon credits, IP — the list goes on. These tokens are subject to and , with rules around recovery and re-issuance that other crypto assets lack. A security token represents an electronically wrapped stake or share in a private interest like a fund or company. art federal security regulations will be legally enforced as securities A few examples of tokens already exist in the wild ( , , ). But the majority of assets are still far from tokenization, and asset holders are likely not interested in building infrastructure — exchange support, additional distribution, whitelisted users, audits — from the ground up. security CityBlock Capital’s NYCQ $20mm tokenized investment fund Blockchain Capital’s BCAP raise for it’s third fund Pangea’s tokenized Brooklyn building Thus, security token platforms have sprung up to effectively offer tokenized assets These platforms force users to register and allow assets to determine localized requirements at issuance. Then, they regulate the secondary market —either directly or via a network of providers. compliance-as-a-service. Leaders in the space include: Harbor Polymath TrustToken For a deeper dive into the economics and tech of each, read on here. Why do we need another token? The market opportunity for these tokens is . . equities and debt were estimated at in 2016. For these assets and others, . massive Global real estate value was recently estimated at $217 trillion Global $67 trillion and $99 trillion respectively issuance fees can range from 5% to 10% of the amount raised This method is the current ownership accounting model**,** removing the middleman’s fees and latency. With tokenized ownership, parties can trade and settle within minutes rather than days for equities and up to months for trusts, at a fraction of the cost. That That is partially because improved speed and cost leads to higher liquidity, potentially and curtailing resell risk. faster and cheaper than opens up new opportunities — like fractional ownership and a broader investor base. closing a 20–30% “illiquidity discount” — suddenly developers can slice up a building in a specific neighborhood and give everyday investors access to that appreciation. A liquid market around fractional units would mean homeowners could diversify their existing exposure, selling ownership in their property and buying stakes in an emerging area a few miles away. Since homes are often that type of diversification can provide meaningful downside protection. Fractional ownership changes the economics of owning pricy assets and decouples use from price exposure people’s largest purchase, Similarly, those investors could own a percentage of their favorite artist or musician’s rights. Extrapolating, that means could move beyond consumption and social media into the investment world — people could go long or short brands based on their views. And asset-originators / holders can bear less risk — consumer activism museums could continue to display their art while others own the rights to the asset’s appreciation. “You can go long French impressionists and short modern art. You can do the same with real estate — I tear off a 10% strip of all my Class A in Midtown and create a Midtown fund. Class A in Upper East Side, Downtown, Brooklyn, Jersey. I can go long Manhattan, I can go short Brooklyn.” — , CEO of Harbor Josh Stein Also, An interested US investor could buy into a neighborhood of Bangkok while an aspiring Nigerian investor tries his hands at small cap US equities. That greatly, a primary means of . It also means new entrepreneurial asset advisors will arise, separate from large advisory firms. assets become global. opens up financial access to capital appreciation wealth accumulation Who’s going to want this? Which assets will choose to tokenize first? Most — art, real estate, diamonds. Assets that revolve around from that initial liquidity with little downside from mark-to-market swings. hard assets would strictly benefit from increased liquidity licensing rights like music and IP may also benefit However, for a period of time, to access patient capital and advisers instead of the face. As we’ve seen, many startups have already realized that conundrum, at all costs. private companies and investment funds might prefer to have illiquid capital “short-termism” public companies resisting the pressure of going public For more on how leaders in the space like Harbor , Polymath and TrustToken work and a dive into the implications of their varied business models, read on here .

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E-ownership: The Next Wave of Securitization

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E-ownership: The Next Wave of Securitization

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Companies Mentioned

Monica Desai

About Author

TOPICS

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