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Security Tokens the Next Step for Regulated Crypto Exchanges
Once the institutional ‘smart money’ enters the market, we will see a liquidity pool difficult to imagine compared to the current market.
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Once the institutional ‘smart money’ enters the market, we will see a liquidity pool difficult to imagine compared to the current market. The path forward is the tokenization of securities and the capital markets.
The crypto sphere took the world by storm in 2017 when we saw the overall cryptocurrency market cap surge by some 800 percent. ICOs across the world raised billions of USD over the past two years and, although we are currently facing a bear market, we can be confident that crypto is here to stay.
I say this backed with 17 years of experience with institutional trading and brokerage.
Security Token Offerings (STOs) are innovative because they mitigate a number of known issues concerning traditional securities trading by introducing transparency of digital ledger technologies. With the right regulations in place, we will be able to tokenize stocks, bonds, futures, swaps, equities, and so on—all on distributed ledgers. Furthermore, they will make redundant the current bureaucratic paper-based and agency controlled approval and issuance of securities.
A number of exchanges are currently applying to become regulated, and thereby allowing them to list STOs, including: The Gibraltar Stock Exchange, Coinbase, Templum, SharesPost, the Australian Securities Exchange, the Malta Stock Exchange, SIX Swiss Exchange, the LSE, and ZBX (the Malta-based exchange I have been proudly managing since 2018).
Among other strong financial jurisdictions such as the UK, Switzerland, and Singapore, Malta is at the forefront of the industry and we are currently applying for a MiFID II license from the Malta Financial Services Authority for STO-listing. The benefits of Malta licensing STOs are varied. Malta has flexible fund licences, timely licence issuances, attractive tax, and comparatively low operational costs.
Although ‘STO’ is certainly becoming something of a buzzword, it is not as easy as it may seem to launch an ICO. Regulations on STOs are far tighter. The liquidity prospects for these markets, however, are also far more vast due to the attractiveness as an investment opportunity for institutional money. Some estimate that the STO sector will be worth some 10 trillion USD by 2020.
In order to successfully launch an STO, I believe it is fair to say that your company should already have a stable cash flow, some 10 million USD in annual revenue, have established itself internationally, and be hungry for additional liquidity for your token—a lot of liquidity.
In the end, it is the financial supervisory authority who will decide if your token is a security or not. As the SEC has gone after a number of ICOs in late 2018, I believe it is fair to say that listing an STO on a regulated exchange provides much-needed security for investors and startups alike. This can also have a mitigating effect on the typical pump-and-dump patterns of many ICOs, as well as providing your project with investors who are in it for the long run.
Finalizing my thoughts on 2018, which has been a tough year for ICOs, I believe 2019 will be the year when the cryptosphere matures out of the wild days of 2017. We will see a number of prominent projects breaking through critical thresholds for adoption, and a crypto trading market which will come to resemble traditional financial markets. This said, it is important not to step too far away from the initial objective of blockchain technology, which is to promote independence and financial sovereignty through decentralization.
Moving towards regulated markets and consolidation will be, I believe, a difficult balancing act for the major players in the crypto space. Let 2019 be the year when crypto markets return to full strength in a more reliable fashion.