The cryptocurrency community is always seeking new ways of pushing the market forward. Over the course of five years, many new products have been launched in this market. One of the most exciting products has to be tokenized securities. The optimism that has come with the launch of securities in the crypto market has been admirable. In fact, this new market has quickly gained many stakeholders and currently; the talk now is all about STOs. But how exactly did this market get here? And what do these new products mean for the financial market as a whole? Let us look at these new frontiers in the digital financial world.
What exactly is a security token? It is a crypto token which takes its value from assets that it represents. Basically, assets like commodities, property, and bonds among others; can all be underlying assets for a security token. The concepts of ordinary securities have thus been brought to the crypto market in the form of a token. Security tokens have made it possible to have some regulations in the crypto market. The SEC and other regulatory authorities have been able to find a middle ground where issuance rules are outlined and followed by market actors.
You might have also heard about utility tokens in the past. The market of tokens is currently evolving and utility tokens are the other form of crypto token available. Utility tokens are basically items that can be used for making purchases in a decentralized blockchain.
Security Token Offerings (STOs)
STOs are the new ways of issuing funds in the crypto market. Investors are able to buy into STOs via public offerings. Before the advent of STOs, ICOs were the order of the market. Because of the regulated nature of security tokens, the STO market is quite different from the ICO market. To start with, there is control and regulation in this market due to the involvement of regulatory authorities. Other than that, many of the negative issues that were associated with ICOs are no longer there because of a stringent legal framework that is guiding STO issuance.
The ICO market has been losing credibility in recent years because of rogue startups that pop up and vanish haphazardly. This is the main reason that has driven most investors to the security token market. The compliance procedures that have been outlined by authorities simply make it harder for startups to do coin offerings randomly.
The Role of Security Tokens in Finance
Security token offerings come with many great benefits in the financing world. First, there is an overall reduced issuance cost because of the lack of middlemen. This is a characteristic that typically defines the crypto market. Secondly, there is a fast execution process that saves time for investors. This is because there is no bureaucracy involved in the process of issuance. Automation is one key factor that cuts across the blockchain. There is also the existence of huge markets and people from around the world are able to invest easily. The easy storage methods, higher liquidity, and an overall streamlined market make security tokens the financial options of the future.
One of the key issues that define security tokens is the ecosystem that has developed around them. Unlike previous products in the market, security tokens have huge prospects because of the overall involvement of different parties. You can find different companies that are actively developing products that facilitate the working mechanism of the various parts of the system. Issuers, investors and regulatory authorities are all interconnected in a functional manner. Companies like Polymath and tZero are not just building platforms where trade can take place, but they are also developing their own tokens which will work as part of a bigger ecosystem.
The Future of Security Tokens
ICOs might have lost some traction in recent times but they are part of the bigger picture when looking at security tokens. It is because of ICOs that the market was able to realize that there were some problems that needed to be addressed. Security tokens seem to just be the perfect alternatives at the moment. The regulatory procedures that have come to define the STO market have opened up the crypto market for a greater future.