Security Tokens Poised to Bridge Crypto and Fiat Economies, Research Shows
Advanced investment and financial services company United Traders has released original research on security tokens — cryptographic tokens that represent a security as defined by local regulations — outlining some of the biggest trends, offerings, and predictions for the space. While 2017 was the year of initial coin offerings (ICOs), with startups raising over $6.6 billion, 2018 was the emerging year for security tokens (STOs) and private offerings, which have the potential to bring the classic fiat and crypto economies much closer together.
“Despite the fact that 2018 was a difficult year for the entire crypto industry, there has been the gradual convergence of this market and traditional ones. The bridge that supports this process is security tokens,” Alexey Markov, lead trader of United Traders, wrote in the report. “Thanks to them, startups can significantly reduce the costs required to raise capital and investors gain more direct access to promising companies. Intermediaries like classical underwriters and depositories are replaced by the blockchain registries, smart contracts and reliable custodians.”
While barriers to crypto assets remain and will likely hamper growth in 2019, according to the report, the foundation is being laid for a dramatic shift in the market in the next two years or so. According to the report, three key trends to watch during that time are:
- Private token sales. More and more companies that build blockchain-based projects and technologies are switching to private token sales that face less scrutiny from the SEC and other regulators. There have been several major private token sales that were limited to accredited and institutional investors—a stark contrast to the large crowdsales before that were mostly raised from a public audience. Telegram raised $1.7 billion in a private sale to accredited investors — demand so strong it no longer needed the public ICO that was planned. Blockchain-based entertainment platform TaTaTu also raised $575 million worth of digital coins in a private sale thanks to the participation of Prince Felix of Luxembourg, BlockTower Capital, Lady Monika Bacardi and Lyna Capital, among others. Price-stable cryptocurrency Basis nd blockchain infrastructure company Orbs were also cited in the report.
- IPOs. Some of the largest blockchain-focused companies looking to raise capital have decided to forgo the ICO model, relying instead on a classic IPO model to raise capital for their operations and growth. Of course, preparation for an IPO is expensive, complex and time-consuming, while once the company is public, there are stringent requirements for disclosing financial and personnel updates. Projects with an IPO in their future may include bitcoin mining company Bitmain, cryptocurrency exchange Binance, and Chinese blockchain services provider Huobi, which some speculate is pursuing a backdoor listing.
- Securitization platforms. One of the main applications of security tokens is the securitization of real-world assets. These assets can be moved on-chain and utilized in smart contracts that replicate the business logic of those processes. This also raises a lot of questions about regulations, verifications, KYC processes, and AML processes. Securitization platforms intend to solve these considerations in an automated way so the issuers don’t have to. tZero, Polymath, and Open Finance are among the leading names in this category. Read the full list and find out more about them in the report.
The recent ICO boom was caused by the immaturity of the industry and a lack of appropriate regulation and guidance. Yet in terms of funding, the model proved to be quite beneficial for startups. A huge number of investors instantly mobilized their resources and set up an impressive number of funds, bringing capital to the blockchain-powered projects across the world. This new research from United Traders suggests that, despite the current so-called “crypto winter”, the uptrend for blockchain and crypto projects will continue, with security tokens acting as a bridge between the crypto and fiat economies.
If this press release is too boring and sad for the beginning of the year, check our quiz which will help you to find correlation between Sophia the Robot statements, Pavel Durov food preferences and BTC price for 2019.