Of late, we have had lots of experts predict that security tokens could become become the next big thing. Some have even gone asbfar to say that it could befine a multi trillion dollar market within the next 15 years and the reasons are not far fetched as regulatory bodieshave been coming down on initial coin offerings also known as (ICOs), security token offerings (STO) have proven to be a worthy alternative. Cryptocurrency companies like Nasdaq and Coinbase are already making forays into the STO zone and all this has everyone believing that cryptocurrency is the future. We are going to find out how true that is in this post but first, what is a token?
A token is a representative of something in its particular ecosystem. It could be value, stake, voting rights, or anything. A token is not limited to a particular role; it can fulfill a lot of roles. Meanwhile, A cryptocurrency coin, is independent of a platform and they can be used as a form of currency outside their native environment. A token can represent an asset or utility that a company has and they are usually given away to their investors during a public sale called the ICO. ICOs are the cryptocurrency version of community-funding and they have been truly productive.
What are security tokens?
Security tokens normally derive their value from an external, tradable asset. Since the tokens are seen as securities, they are subject to federal securities and federal regulations. If the ICO does not follow the regulations, then they might be subject to penalties.
Tokens are subject to federal security regulations, they are compliant from the first day itself. So, in the United States, security tokens need to follow the named regulations:
Regulation D, Regulation A+ and Regulation S
Regulation D allows a particular offering to avoid being registered by the SEC provided “Form D” has been filled by the creators after the securities have been sold. The individual who is offering this security may solicit offerings from investors in compliance with Section 506C (Section 50 requires a verification via which the investors are indeed accredited and the information which has been provided during the solicitation is “free from false or misleading statements.)
Regulation A+ is an exemption that will allow the creator to offer SEC-approved security to non-accredited investors through a general solicitation amenities can value for as much as $50 million in investment. The issuance of Regulation A+ can take a lot of time compared to other options and for this reason, Regulation A+ issuance is reportedly more expensive than any other option.
Regulation S happens when a security offering is carried out in a country apart from the United States and is therefore not subjected to the registration requirement under section 5 of the 1993 Act. Security Assets are important because they act like a bridge between legacy finance and the blockchain world.
As earlier stated, security tokens have been amazing. Security Tokens have brought
As of right now, there is a real deficit of accountability in the ICO space because of a lack of regulation for utility tokens and for the ICO space to regain some credibility, it should make sense to somehow join the crypto space and the legacy finance space together.
Faster Execution Speed
By removing the middlemen the traditional financial institutions are laden with, securities allow for faster execution time for successful issuance of security tokens. Due to the increased speed, security tokens are bound to become attractive investments.
Better Traditional Finance
Security tokens remove the need for middlemen which reduces fees and in the future, we predict that smart contracts may reduce the complexity, costs, and paper works.
More Free Market Exposure
Using security tokens, creators are allowed to market their deals to anyone over the internet. This exposure to free market helps in increasing asset valuation. Also, this increased exposure leads to Huge number of investors since creators can now present their deals to anyone on the internet, the investor base increases exponentially.
This removal of middlemen is by security tokens is usually seen as a huge advantage. However, there are some disadvantages which unavoidably comes along with security tokens. One of such is the fact that removal of middlemen leads to the shifting of responsibilities onto the buyer or the seller in the transaction.
In conclusion, security tokens have a far less share of the market as compared to utility tokens, however, security tokens are something which are quickly becoming huge and need to be embraced by everyone. It is believed that tons of capital is going to flow from Wall Street to security tokens instead of utility tokens.
The shift is because security tokens are considered to be safer because of the strict regulations.
Every type of ownership can be tokenized, which is a massive multi-trillion dollar addressable market