Remember tokenized
securities or securitization with tokens on blockchain?
With the entire year in
crypto defined by a maelstrom of projects embarking on decentralized finance
(DeFi) aspects to their products, it can be easy to forget that previous
advancements in blockchain-based technologies have continued to make great
headway in terms of adoption and application.
Security tokens and tokenized
securities
In 2019 especially,
with greater regulatory scrutiny on blockchain-based crowdfunding in the shape
of initial coin offerings (ICOs), many projects sought to reconcile crypto's
much-maligned aspect of democratic fundraising with increasingly unforgiving
regulatory compliance. Hence the proliferation of Security Token Offerings
(STOs) that meant to replace ICOs as legitimate, law-abiding instruments to
raise funds and issue securities through blockchain-based tokens.
It's important here to
distinguish between security tokens and tokenized securities -- often used
interchangeably, but hardly the same thing. In the former, blockchain
technology is used to create new tokens that is a representation of real-world
"securities", ie. crypto assets that share some qualities as securities in the
traditional sense. In the latter, we are talking about existing assets
(securities) in the real world, that are expressed digitally... wrapped, if you
will, in a token technology.
An overlooked breakthrough
Put in another way,
security tokens create a token and create securities, but tokenized securities
simply digitalize existing securities. That really is something that solves a
major problem with traditional securities, which makes it somewhat surprising
that it hasn't been picked up more.
Tokenizing securities
immediately helps with widening the market and improving their liquidity. In
addition, it's not a new product so it isn't so much something for regulators
to look at, it simply is a new, digital channel for distribution, which
actually makes tokenized securities simpler to approve.
They're not just an idea, they're
already here.
Because tokenizing
securities are comparatively simple to do, there actually have been quite a
number of them entering the market. Last year, we saw traditional funds like 22X Fund put together a tokenized fund (with money raised through an ICO
in fact in 2018) to invest in 22 startups. But SPiCE will argue it was even
earlier, as the VC fund set up in 2017 and lays claim to being the first
tokenized VC fund able to offer immediate liquidity for venture capital --
which otherwise takes years to liquidate!
This year, AllianceBlock, which is building the
"world's first globally compliant decentralized capital market" partnered with
another blockchain firm AIKON for secure blockchain-based identity management service -- making
decentralized finance services accessible to all, and securing that access with
the blockchain.
The data already shows
that the coming years will see securities very soon fully digitized and
empowered by blockchain. From owning a small share in your favorite soccer
club, to fractional ownership of pizza restaurants in a country halfway around
the world from you, blockchain and tokenized securities are spelling out a way
for $256 trillion worth of
real-world assets, mostly illiquid as physical representations, to go digital.
As they say in
blockchain, tokenized securities are a matter of when, not if.
This article originally appeared on
aikon.com