We have been looking at how security tokens are all poised to be the next big thing in the world of investments. One great advantage that tokenization brings about is liquidity. It would mean that the token can be sold in the market with relative ease and can be translated into tradable money.
Liquidity – the billion-dollar question:
The advantage of liquidity that is brought about by security tokens is being catalyzed by the process of the assets being broken down into smaller units. However, nobody talks about the advantage of liquidity when it comes to trading platforms. The tokenization of assets doesn’t essentially translate into traceability of assets. In spite of all the advantages that security tokens bring to the table – like transparency, easy compliance with regulation and making the entire world of investment more democratic – it is only the liquidity that will make it a viable option for creating an ecosystem which includes STO Exchange where startups, corporate, traditional stock exchanges and regulators work together.
The Glimpses of the Future:
While liquidity might seem like a challenge, there are a lot of steps being taken to ensure that the security tokens become a mainstream trading option in the near future. The best part is that the activity is not limited to a single segment of organizations. On one side, there are traditionally-rooted companies like Morgan Stanley and IBM that have dedicated a part of their research to create a blockchain ecosystem for finance. IBM has been instrumental in the creation of the Hyperledger Fabric, a platform that facilitates the execution of smart contracts.
On the other hand, there are a lot of stock exchanges, both official and unofficial that have recognized the power of security tokens and have gone on to accept them as valid instruments of trading. Let’s look at some of the changes that have accepted security tokens and are working towards the practical Utopia of security tokens becoming the de facto standard for trading.
The Gibraltar Stock Exchange
The Gibraltar Stock Exchange Group Limited (GSX Group), in 2017, announced that they would go on to create a new subsidiary called the Gibraltar Blockchain Exchange (GBX). It would create a new standard of excellence that allows the only high-quality listing to be offered through its Global and regulated market place for the sale of tokens. The Gibraltar stock exchange will become the first European Union-licensed exchange to recognize security tokens, and it can be considered an important milestone not only in the progress of security tokens but also in the larger realm of trading.
When it comes to security tokens, the United States has been lagging a bit. In spite of the uncertainties in regulation, there are security token projects that have taken off. One such security token project is the OpenFinance Network, commonly abbreviated, OFN. OFN is a trading, clearing and settlement platform for alternative assets which has a centralized marking system and a decentralized settlement process. They had launched their beta testing channel with a set of early investors but the trading is not live yet.
tZERO is another interesting project from the United States and has been in the limelight because of its parent company Overstock. While the initial publicity for tZERO might not have been all positive, it has all the credentials it takes to become a major player and again makes changes in the world of security token trading, thanks to its operator capacity, access to capital and their futuristic road map. What makes tZERO noticeable is that it owns two SEC-registered FINRA-member broker-dealers; SpeedRoute LLC and PRO Securities LLC. This would mean that tZERO has always been a platform for trading traditional equities but it is all set to evolve into a proper security token trading platform.
SharesPost was founded in 2009 and was launched for online private equity secondaries. With a user base of above 50,000 accredited investor and with a history of having facilitated more than $4 billion in the transaction, it is not a thing of wonder that SharesPost handles the shares of more than 200 technology companies. Recognizing the potential of security tokens, SharesPost has initiated a revamping of its alternative trading system security secondary trading of security tokens. SharesPost is one of the finest examples of a traditional company that has been recognized and transformed itself to accommodate security tokens.
No article on blockchain tokens would be complete without the mention of Coinbase. Coinbase was a household name when it came to the cryptocurrency market, and it had a regulated broker-dealer, which enabled it to accommodate secondary trading of security tokens. The acquisition spree of Coinbase made it a compliant regulatory body. A broker-dealer license, an ATS license and a registered investment advisor license (RIA) enabled Coinbase to almost commoditize token trading. The huge number of users meant that the liquidity was never an issue.
Australian Stock Exchange
Australian Stock Exchange is a fine example of how the distributed ledger technology and tokenized shares can make its inroads into a traditional stock exchange far outside the United States. However, the Australian Stock Exchange announced that it would operate on the permissioned blockchain where the stock exchange will be the sole authority to perform transactions. This falls outside the scope of the philosophy with which the blockchain was incepted – it is more of a centralized network! What remains for the future of the ASX will be an interesting case study of centralized blockchain for security token trading.
There are also other traditional stock exchanges like the Swiss Stock Exchange, the London Stock Exchange, which also happens to be one of the oldest stock exchanges in the world. Recently, the Malta Stock Exchange collaborated with private players to create a global and decentralized stock exchange completely compliant with the regulations of the European Union.
Is STO The Panacea?:
No technology was able to completely replace all the utilities of the previous methodology of any service. The blockchain and security trading with security tokens will also fall under the same umbrella. However, with so much of backing and support, it will not be long before blockchain and security token exchanges creep into the mainstream arena of investment.