The previous year had proved to be a fruitful beginning for Security Token Offerings (STOs). According to crypto news, many writeups have been optimistic that 2020 would certainly be a good year for security tokens. But what were those reasons behind that made 2020 a good start for tokenization? Well, in this blog, we are going to discover all those valid reasons which made it possible. However, before moving on further, it is better to brush up some knowledge about STO or what you call Security Token Offerings.
What Are Security Token Offerings?
A security token offerings (STO) is a concept, where, security tokens are sold in cryptocurrency exchanges. These tokens are used for trading real financial assets, including fixed income and equities. Besides this, a blockchain ledger system is also needed to store and validate the token transactions.
Securities token offerings are much subject to regulation. It represents a much secure investment in comparison to ICO. Apart from it, STO on a regulated stock exchange has the capacity to remarkable efficiencies and cost savings.
Crypto Assets Trust Building
With the launch of consultation of the regulatory perimeter for crypto assets by Financial Conduct Authority in January 2020 culminated in its feedback, and issuing of final guidance that was issued in July, focusing on the benefits of the firms which are concerned with crypto assets as well as investment managers, professional advisors and the consumers having active participation in the market. Security tokens are somewhat similar to traditional financial assets like bonds and shares. So it is understood that security tokens come within FCA’s regulatory remit.
Relevance Of FCA’s Guidance
The FCA’s guidance is considered very important in the UK, as by having clarity brings better understanding about the risks and confidence about investment and growth. With crypto-assets markets moving at a fast pace, FCA is finding needful to work with other regulators to confirm the continuous treatment of these assets to national borders as security markets.
Hosting Regulatory Sandboxes
It is a clear fact that FCA has constantly been supporting the UK’s crypto-assets ecosystem. It has even hosted regulatory ‘Sandboxes’ to give opportunities for businesses for examining new theories in the market. According to a report in April 2020, a London based blockchain startup, 20/30, aiming for tokenising equity and other securities raised euro 3 million by selling tokenized shares and resolving them into evaluating environment on the London’s Stock Exchange Turquoise Platform. It was first shared issue where blockchain technology was used.
What Makes Security Coins Differ From Crypto Assets?
One feature which makes security coins apart from crypto assets is their backing by a tangible asset. It has given rise to the prediction that clearly indicates that ownership of other assets is possible to be tokenised, which also includes real estate. With this example, it shows that tokenisation can prove much beneficial for property developers, as it would be easy to make a fundraising process for the new building project with the creation of lower threshold that would benefit for least token investments that can be sold on secondary market afterwards.
It results in boosting the liquidity of the property market, thereby opening wider opportunities for interested parties.
Negative Aspect Of Tokenisation
As per negative aspect, it cannot be fully confirmed about the working of tokenization with existing property law or tokenisation of shares, company law. Because of this, it impacts the expansion of tokenization for further firms, who are into the business of issuing tokens.
Future Of Tokenization
There are possibilities of UK startups to experiment with the tokenization for its growing popularity overseas. According to crypto tokens list, there came a report about the United States becoming a hub for many infrastructure providers for tokenizing assets, secondary markets and also for global investors in security tokens.
There has been another interesting case of the use of security tokens offering that happened in the US, where a patent was filed by the renowned firm Nike in December 2020, are suggesting for company plans to tokenize trainers ownerships. The idea behind it was owners verification regarding the originality of their footwears and for tracking prior ownership by using blockchain technology.
Though it can’t be said that the year 2020 was fully dedicated to the year of security tokens as per such jurisdiction. But there is much popularity of tokenization in the US is expected to depend on successful tokenisation of widely used assets, be it consumer product space or investment space (shares and property). Somehow there is hope regarding tokenization arousing token trading on secondary markets, completing the breakthrough. But one has to wait for the current year (2020) for the breakthrough to happen. The future lies ahead with the growth depending on the previous year. So one needs to keep an eye open for the latest developments regarding tokenization in the coming years.