What are the main benefits of security tokens?

November 20, 2018

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We’re talking about security tokens here, so cryptocurrencies like Ethereum, Bitcoin, or Bitcoin Cash, which are independent of platforms, are not what this post is about.

Tokens – Golem or OmiseGO, for example – are the order of the day, and represent an asset or utility that a company has, which it usually gives to investors during a public sale. Every token is unique, it’s often hard to qualify each token from a legal perspective to determine whether the token needs specific approval from authorities, however, as it stands, major digital asset trading platforms don’t want to accept suspicious security tokens with an unclear legal nature to avoid putting their businesses at risk as they’re not equipped to trade securities and simply don’t possess the required trading license. Despite this, legal regulations and tokenization structures are evolving all over the world – by default, security tokens trading is not prohibited.

 

One of the major issues with security token trading is the lack of liquidity, because there are very few regulated token exchanges currently in operation. There’s reason to be optimistic though: there have been several developments over the last 18 months, including the diversity of players making waves in the security token space, from new entrants to huge stock exchanges. Also, there’s more than one jurisdiction at the forefront, and Europe is arguably one step ahead of the pack due to its more stable regulatory climate, compared to the States…just look at what Luxembourg is doing regarding new regulation and adopting blockchain at the moment. Platforms like OpenFinance, Templum, Gibraltar Stock Exchange, SIX Swiss Exchange and the Malta Stock Exchange are transforming the digital exchange market.

 

It appears Initial Coin Offerings (ICOs) now have a limited lifespan – they’re open to scams. Blockchain, the technology that makes all of this possible in the first place, initially promised transparency, inclusivity, and security, so the fact people have been scammed at all has rocked the boat. This is where security tokens come in. They are just like the investments people trade on TD Ameritrade, T. Rowe Price, et al, but why are people choosing security tokens over traditional assets? Well, they’re digital for starters, and this is the way the world is going, so they’re essentially more intelligent that your average asset. Also, you can trade them when you like, there’s no waiting around for the New York Stock Exchange to open for business each day, which is great for traders living in different time zones. Security tokens increase liquidity, open up the market to a broader range of investors, increase settlement times, and the number of companies that can actually list themselves on exchanges. They slash market friction, costs, and bank employee numbers, which is either good or bad news, depending from which angle you look at it.

 

One industry that is/will benefit from security tokens is venture capital – a market which remains very exclusive for a number of reasons, mainly due to the lack of liquidity and the time it takes to see a return on investments. One basically needs to pump in serious sums of money, luckily blockchain and tokenization have opened up the market to every Tom, Dick, and Harry who can invest small amounts. But with so many new investors each playing around with such small fractions of digital shares, doesn’t this make more work for venture capital funds? No, because security tokens streamline the entire process, from a regulatory to operational standpoint.

 

A word of warning: when selecting the best online trading platform for exchanging security tokens can seem like a daunting task these days – opting for the right one is a vital stage of trading so you need to consider a number of factors like asset security and commission fees to make sure they’re right for you.

 

Scrutinize the reputation, reliability, commission, trading volumes, and payment methods, to name but a few aspects, of each trading platform before making a final decision.