Security Tokens are bringing safety and reliability back to Cryptoassets
The digital asset market has for some time been dominated by Bitcoin – in both market capitalization and trading volume. However, the situation is quite different today. This is as a result of the diversification of digital-asset instruments. In 2014, Bitcoin represented 87% of the digital-asset market value at US$8.1 billion. In 2019, it accounted for only 53% at around $64 billion. On the 15th of February 2019, the overall digital asset market value was estimated to be around $120 billion. The evolution is an example of the development of other cryptocurrencies, and alternative digital assets. These include Initial Coin Offerings (ICOS) which have offered diversification opportunities for investors.
ICOS defined and explained
An ICO stands for “Initial Coin Offering.” It is a common method to raise funds, where a blockchain-based company sells their tokens with the promise of having utility in the future. A company conducting an ICO doesn’t sell equity, rather it sells its token, with an intent of distribution.
ICOs were a hot topic in 2017 and early 2018. Billions and billions of dollars were raised; however, the majority of these projects have failed to deliver. As a result, ICO investors have grown angry ad skeptical of the model.
The issue with ICOs is that, as a financial instrument, they’re on “shaky footing.” The reason is that there is little to no certainty that the tokens you buy during an ICO will have any value later on. At the early stage of purchase, the value is all speculative. Thus, ICOs have gotten into hot water with the Security and Exchanges Commission.
The Gold Rush of ICOs
The first initial coin offering (ICO) was launched by Mastercoin in 2013. Since then, the number of ICOs issued every year skyrocketed. From only three ICOs in 2015, the number rose to 902 in 2017. The market reached a peak in March 2018, with over 520 issuances – and then it started to decline to a mere 117 new issues in December 18.
(See figures below):
Source: Coindesk, Optimas Analysis
Source: Google Trends
The booms in market value and issuance that started in 2017 and lasted up to mid-2018 are explained by the immaturity of the digital asset market, and lack of regulations. The massive rise in the market can be explained by:
- Lack of investor knowledge
- ICO Scams
- Lack of Transparency
- Booming value of cryptocurrency market
Enter Regulators, and Security Tokens
Regulators have now made their case clear that tokens should in fact be treated as securities, without eliminating the tokenization principle. The Security Token Offering (STO) concept is emerging: tokenizing existing asset classes under the current regulatory framework. The idea: to leverage blockchain technology and infrastructure in order to deliver “productive” innovation. This will improve the functioning of market infrastructure in illiquid assets such as real estate, private markets, intellectual property etc.
This development could deliver a number of benefits to market participants such as:
- VC funds
- Real Estate
- Secondary Markets
Security Token Offerings (STOs) are more and more being seen as the new, legitimate way to crowdfund projects on the blockchain. Think of regular crowdfunding, and now consider if that same concept was tokenized.
“Instead of representing equity the old-fashioned way, you would receive a token which symbolizes equity.” Tim Fries, the Tokenist
Tokenized securities give buyers ownership. This doesn’t need to be equity – it can also be real estate or financial derivatives. In the case of the Finka Token, it represents a right to receive the net operation value of the ranch (i.e. the net proceeds from the sale of the cattle) for a period of 50 years – that offers an expected 5-8% IRR for the investor.
STOs are legally compliant, licensed ICOs which protect investors against fraud. They are the new, SEC-friendly ICO!
STOs bring a world of new opportunities to the blockchain space. The Finka Token is proud to have used sophisticated financial engineering and blockchain technology to bring cattle ranching as an asset class to investors for the very first time. We hope the concept is copied, and that other assets such as gold, land, property etc. can be invested in through financial instruments like the Finka Token. We have merged traditional assets with pioneering technology. STOs are a way to bridge traditional finance and the blockchain space – and the new financial instrument that is the Finka Token represents this. STOs such as the Finka Token have the potential to open the floodgates for traditional investors to enter the cryptocurrency world. The Finka token isn’t just a new financial instrument; it’s a representation of the future of finance, and the ability that blockchain technology has to merge traditional assets with innovation.