Security Tokens, Custodianship and the Unstoppable Disruption of the Financial Sector
What most people outside the cryptocurrency industry hear when they hear news regarding crypto usually has to do with hackings and how millions of dollars’ worth of crypto can just disappear never to be recovered. Many institutional investors are hesitant to enter the cryptocurrency market for a variety of reasons, not the least of which is the clear lack of custodianship; a heavily regulated financial institution that holds customers’ securities for safekeeping to minimize the risk of theft or loss occurring. Earlier this month, Coinbase announced that their regulated cryptocurrency custodian solution, Coinbase Custody, was complete and open for business. Problem solved.
It’s no secret that the current financial system has had, and continues to experience some challenges — costs, liquidity, time to settle, etc. A study done by global funds transaction network Calastone claims that asset managers could save $2.7 billion a year if the investment industry switched to a blockchain infrastructure. With custodian solutions hitting the market, the two worlds — traditional finance and cryptocurrency, are about to collide.
Enter Stage Right: Security Token Offerings — STO’s
Utility tokens were the talk of the town in 2017. Security token offerings or STO’s have been the talk of the crypto community in 2018 and it looks as though they will dominate the discussion in 2019 as well. Insiders are excited about a regulatory compliant offering that is bringing legitimacy to the crypto world when so many ICO’s (initial coin offerings) have performed in a less than honourable fashion.
Security tokens are regulatory compliant offerings that are subject to federal security regulations with proper disclosures on the blockchain. Instead of buying shares one is buying a token that represents ownership in an asset like real estate or equity in a company.
Benefits of Security Tokens
— Additional value for existing shareholders
— Quicker liquidity
— Global access to new markets
— Reduced cost — lower fees
— Instantaneous value transfer 24–7; trades are settled in real time
Real estate, managed futures, stocks, derivatives, bonds, a recording artist — all of these and more can be tokenized.
Even Shark Tank’s Kevin O’Leary has some insight into the future of STO’s. Early in 2018 he announced participation in an asset-backed hotel ICO Cryptocurrency launch. The project did not get off the ground, at least as of yet, but it shows the potential of what the blockchain space has to offer investors.
“I’m a believer that asset-based coins will replace small-cap stocks,” O’Leary said. He added that ICOs backed by real assets would allow companies to circumvent much of the Wall Street middleman apparatuses, such as the army of investment bankers and venture capitalists and sell directly to would-be stakeholders.
What does this mean? Simple, the power of the blockchain and digitization of securities will provide much needed change and give innovators, traditional investors and growth companies alike a whole new avenue of wealth creation and thereby change how the world of finance is democratized.
It appears this fast-moving juggernaut will not be stopped.
Coinbase Announcement — https://blog.coinbase.com/coinbase-custody-is-officially-open-for-business-182c297d65d9