Security token industry overview

While regulators around the world are stepping up the efforts to boost oversight regarding the crypto ecosystem, the crypto arena is changing at a breakneck speed. The amount of venture capital funding in the blockchain industry has doubled if compared with 2017. The security token or tokenized asset sector is rising. An essential security level infrastructure switch is shaping up, establishing the point thought to be the most significant development in the digital economy ever!

Industry summary

Security tokens are inevitably getting mainstream adoption in the digital economy industry, as the institutional presence on the crypto sector reaches unprecedented amounts.

Wall Street capital is actively looking to purchase compliant, thriving businesses along with teams that fully comply with current cryptocurrency investment models.

We are witnessing the final round of competition between exchanges that offer fully compliant securities trading platforms on the blockchain which is expected to dwarf by size and volume regarding everything that has been achieved in the cryptocurrency ecosystem thus far.

The exchange landscape for the foreseeable future will be defined by who wins the race.

The state of the security token industry at present time

The crypto markets are witnessing evidence regarding what was once just rumors concerning Wall Street capital intended to flow into the industry, is now beginning to materialize. Hedge & Pension funds and other collective investment schemes are shifting their focus to the security token industry, brought by a maturing market, security token proliferation and the arrival of licensed marketplaces created for the effective swap of such assets.

Countless players make up the tokenized security ecosystem, all of them performing a vital role, each of them focusing on specific elements to transform the up and coming digital asset industry into a reality. Some of the areas covered are:

  • Issuance platforms
  • Security token exchanges
  • Brokers/Dealers
  • OTC
  • Custodian firms
  • Advisory
  • Investment decision banking
  • Investors
  • The list goes on …

Although all subsectors related to the tokenized security industry play an important role, the issuance platforms and the security token exchanges are the most crucial. They are the core of the industry. Remarkable progress has been made on both, however, what is keeping them from already being fully operational is the lack of a protocol that protects them from legal consequences when tokens are sold on the secondary market. This is presently that last piece of the puzzle before the industry fully takes off. Luckily great progress regarding this issue has been made, and security token protocols are fiercely under development, e.g., ERC-1400 by Ethereum, ST20 by Polymath, Tzero by overstock, to name a few; 2019 will historically mark the settlement of the 4th financial revolution, the possibilities from than on are mind-blowing!

Top security token issuance platforms

Polymath — Polymath is positioning itself as the Ethereum for security tokens. They are working on providing the legal and technical answers for the tokenizations of stocks, bonds, and other assets on the blockchain.

Securitize — Securitize manages the processing of investors from login to capital received, as well as, the issuance and managing of the security tokens throughout the lifetime of the asset.

Harbor — Harbor is a blockchain platform explicitly created to launch security tokens and also assist them to comply with the current regulatory framework. They are primarily assisting the transition of traditional asset businesses to shift to the blockchain and therefore in their tokenization.

Swarm — Swarm’s SRC20 protocol, provides a cryptographic standard for security tokens. Tokenized objects include real estates, renewables, farming, tech projects, crypto hedge funds, and many more. Anything that can be transformed into “ digital assets” that may be quickly managed, governed and traded.

Securrency — They have a smooth drag and drop procedure for issuance of tokens with one click. They also cover distribution and conduct KYC in 160+ nations, AML on both cryptocurrency wallets and fiat accounts. Additionally, they are also able to perform investors certification and source of funds check-ups.

These platforms are like many other blockchain platforms that we’ve seen so far for launching ICOs, such as, Ethereum, Cardano, NEO, and Zilliqa; though these platforms are not adequately designed or even positioned for issuing security tokens.

Top security token exchanges

tZero — tZero a subsidiary of Overstock, has been created in an extremely easy-to-use way to trade specifically security tokens. tZero’s safety measures make trading security tokens simple, user-friendly and compliant.

Open Finance Network — Open finance system is an innovative security token exchange which allows trading security tokens for certified investors. The platform is live today and is the first US-based regulated security token trading platform, made for the tokenized future.

BankToTheFuture (aka BTF) — BankToTheFuture is an impressive online investment platform for skilled investors. It’s a tokenized secondary market for investors that are prepared to invest in visionary projects which could issue security tokens, such as, shares, traditional bonds, or other types of digital securities.

Bancor — Bancor is also joining the security token sector. The Bancor protocol brings a new standard for cryptocurrencies known as Smart Tokens, and they are continuously and autonomously convertible to other tokens within the system at algorithmically estimated fees.

The security token market potential

Consider how big the worldwide stock market place is. Based on Bloomberg reports, the global market is estimated to be around $80 trillion. Now imagine having perhaps 25% of that stock inventory issued by institutions and companies as being a security token. That could place the security token industry at $20 trillion on a worldwide scale.

To further put the market size into perspective, the S&P 500 added $6 trillion in market cap in January 2018. It shed $2 trillion in market cap throughout 2018. In comparison, in January 2018 the market cap of all cryptocurrencies was around $800 Billion. Throughout the entire year, an extreme market correction took place, bringing it to approximately $115 Billion by the end of 2018. The utility coin/token industry is a grain of sand if compared to the global securities industry. This indicates just how enormous the security token market could be.

Security tokens are going to lead us to mass corporate adoption of blockchain technology, together with the disruption of the traditional financial business landscape. The deep pockets in capital markets will be loaded with security tokens, and once that happens, things will never be the same in the world of finance.

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Security token industry overview was originally published in Data Driven Investor on Medium, where people are continuing the conversation by highlighting and responding to this story.