STOs are all the rage with one huge but… We have yet to see any real legal softening.
Security tokens are all the rage. Predictions are that security tokens will overshadow ICOs as they are deemed to carry more investor protection.
The US is leading this move. Think Polymath, tZERO, Securitize, to name just a few of the platforms hoping to facilitate the listing of security tokens.
One sign that Asia is not wanting to be left behind is GSR Capital’s plan to buy US$160mil worth of tZERO’s own security tokens. GSR is a Chinese private equity group that focuses on clean energy and electric cars. Its VC arm is called GSR Ventures, which recently clarified that it had not invested into any ICOs.
Security tokens are described as being at the intersection of digital assets and traditional finance products. They are linked to the concept of asset tokenisation. In a nutshell that means putting all real world assets into fractional ownership on the blockchain using smart contracts. The benefits have been described as better regulation, with in built KYC and AML, cheaper and faster transactions, and access to more liquidity as security tokens can be easily bought and sold to global investors 24 hours a day.
While all of this sounds great, not all are convinced.
“Many parties are describing a very utopic view of security tokens. In reality, regulatory barriers still exist. Any public offering of tokens through these new blockchain powered exchanges are still subject to the traditional regulation of having sponsors, underwriters, prospectuses and subsequent disclosures.
Securities regulators like the SEC are not going to treat these new exchanges any differently,” opines a senior lawyer who consults regulators in Asia.
He adds, “The irony is that naming the issuance a security token is like painting a large target on your back, asking for the regulator to come and knock you over”.
An ICO advisor, Edmund Yong adds, “The climate for exchanges that list security tokens has become very hostile in the US and other major countries. They are forced to delist such tokens. Do you see any softening?” he asks.
Others reckon that regulators will eventually wake up to the benefits of blockchain-based security tokens and tweak their regulation accordingly.
In his May 27 posting on Medium, Anthony Pompliano of Morgan Creek Digital Assets said this, “It will be difficult for regulators to ignore the benefits of tokenised securities once the technology and impact is better understood. The idea of regulation becoming proactive, while also increasing compliance and data accuracy and transparency, is quite compelling. Not to mention, the hundreds of millions of dollars and thousands of man hours that can be saved.”
Meanwhile Zurich-based expert in crypto regulation and compliance, Cecilia Müller-Chen, tells CNA this, “Virtual currencies will co-exist as private money alongside central-bank-backed fiat currency and will remain part of the international financial architecture. Regulators who recognize that and view virtual currencies as a financial instrument and provide guidance in fostering a safe and fair marketplace will emerge as the winners in establishing themselves as global blockchain hubs.”
Calvin Cheng, the CEO ABCC Crypto Exchange, is convinced that security tokens will rule the crypto world.
“Regulators are catching up. Once securitised tokens and securitised token exchanges are regulated and become mainstream, utility token ICOs will become extinct.
He add, “Utility tokens are now often contrived as they have no or little link to the fundamental business models. Investors have very little rights or protection from investing in utility tokens. They have no right to any dividends and will not benefit from the business doing well directly – instead they have to hope that the ‘tokenomics’ works, and the this is often not directly linked to the business model. Utility tokens were innovated precisely to circumvent current security regulations. Once they have caught up, and securitised tokens are mainstream, utility tokens and ICOs will, as an inferior product, be annihilated.”