Institutional Investors Bet On Crypto Market With Tokenized Securities
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ICOs must evolve to become self-regulatory, in order to advance the
crypto market and become attractive to institutional investors. It’s not
uncommon to find that the majority of companies selling utility tokens
don’t have token economics. Therefore, most listed utility tokens are
not real utility tokens, but rather, these companies are actually
selling security tokens. Due to this problem, many institutional
investors have been bearish on this new market. For instance, securities
purchased by investors in private companies cannot be easily exchanged
into currency without significant time and effort. Security tokens aim
to solve the problems faced by security token investors and utility
token regulation.
“Tokenized securities are bridging the
gap between traditional financial markets and crypto markets because
they are aligned with everyone’s interest. Regulators want to protect
the investors, investors want their assets tradable, and crowds from all
over the world want to invest in the most promising startups at an
early stage,” Laimonas Noreika, CEO and founder of Desico, a platform launching next year for retail investors to invest in Security Token Offerings (STOs), told me.
Tokenized securities enable the
ownership of token transference over blockchain technology so that
tokens can be viewed as “digital assets.” Anthony Pompliano
(Founder & Partner at Morgan Creek Digital Assets) describes
tokenized securities as, “digital assets subject to federal security
regulations. In layman terms, they are the intersection of digital
assets (tokens) with traditional financial products — a new technology
improving old things.” In other words, tokenized securities provide the
innovation of blockchain, matched with the backing and safety that comes
with traditional finance.
Platforms For Investing In Tokenized Securities
While many U.S. citizens are opening bank accounts in various countries to invest in ICOs abroad, Europe now has Desico,
a platform for investing in tokenized securities. The company is
leveraging a new Lithuanian crowdfunding law and regulatory framework to
issue legally compliant security tokens in the EU, creating access for
retail investors to participate in these investments globally.
Desico already has the backing of the Ministry of Finance, the
Ministry of the Economy and the Central Bank of Lithuania (a European
Central Bank), which passed a new law in Lithuania that allows for
institutional investors to invest in crypto assets through Security
Token Offerings (STOs) in Europe. "Regulatory support and strict
adherence to relevant regulations is the key to success for any company
in the cryptocurrency space," Mason Borda, CEO of TokenSoft, a company
enabling organizations to run compliant token sales, told me.
Rewards based crowdfunding startups like Indiegogo and Kickstarter were launched when the US passed a law of permission. Mayra Ceja,
Director of ICOs and Equity at Indiegogo, states, “The future of
security tokens is going to be big.” She continues, “I think it unlocks a
tremendous amount of capital and opportunity to be able to achieve
liquidity a little bit faster, so you’re actually getting a lot of
interest from fully established businesses that can use the blockchain
to raise additional capital much faster.”
Like Malta and other European countries
competing to become first to market and own that market, Lithuania is
one of the only countries that currently has a legal framework for
retail investment into STOs.
There are several startups working on a similar exchange model in the U.S. We believe that tokenized securities, or security tokens, will be more attractive to investors - individual and institutional - but the challenge is how to comply with the laws of not just one, but many countries at once. Lithuania's crypto and crowdfunding framework is a step forward for the global crypto ecosystem. Adoption by more jurisdictions can't come soon enough, Kendrick Nguyen, CEO of U.S. investment platform Republic, told me.
In terms of steps being taken in the U.S. to create regulations around security tokens, Neysan Rassekh, President of Blockchain Government Affairs,
believes that the regulatory framework has already been setup.
According to Rassekh, existing securities laws will be applied to many
tokens. And those tokens that are not deemed securities will be
regulated under anti-money laundering, fraud and related statutes.
The broad outline of a regulatory framework has already taken shape. The urgent need now is for the industry to influence how it is applied. For those clearly caught in the securities net, the key is to actively engage the SEC to impact application of securities laws so that these tokens can survive and flourish, or seek legislative exemptions. Hiding won’t work. To succeed, it is critical to convey crypto’s revolutionary potential, Rassekh told me.
2017 was the year of the utility token, 2018 was the year of
realizing the mistake of the utility token, and 2019 will be the year
for tokenized securities. STOs are the new ICOs. ICOs have misleading
information by ICO issuers, no real shareholders’ rights, and lack of
transparency. The cryptocurrency sector shows much promise and
potential, but is currently limited due to legal uncertainty.
See more at: Morisberacha.com
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