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Next step in Evolution of Capital Markets – Thought Leaders

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Next step in Evolution of Capital Markets - Thought Leaders

So you have a small business, or you are just starting out, setting up your company. Chances are, you probably run short on funding your great, big idea. Or, you have done some preparatory work to take you to a minimum viable product (MVP), but have little steam left to take your product to the market. Or better yet, your product is a proven working concept, but you still need that extra funding to take your small business to the next level.

Every business needs funding fuel to grow. Up until breaking even. And even then, to reach the next expansion levels, businesses need funding to grow and develop. Indeed, a survey on reasons why startups tend to fail in 9/10 cases admit that one of the top reasons for start-up ventures to fail is the lack of funding. 1https://www.cbinsights.com/research/startup-failure-reasons-top/

So what are your options? Not counting grants and subsidies, there are typically two main ways, of funding your business. The capital markets are largely available either in the form of debt or equity funding. The following will be an overview of the currently available funding avenues that companies have at their disposal. From the traditional private equity or debt to less conventional crowdfunding. Indeed, the most recent tokenisation method is the next step in evolution of the capital markets.

This is part 1 of a 5 part series. 

Click Here for part 2

Click Here for part 3

Click Here for Part 4

Click Here for Part 5

 

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Liza Aizupiete is the Managing Director at Fintelum, a European-based token launch (ICO and STO) platform. Liza has extensive experience in traditional fund management, and is also an experienced blockchain entrepreneur, having successfully launched and raised capital (ICO) for Globitex where she was a Co-Founder and Managing Director.

Security Token News

Top 5 Security Tokens to Invest In – Opinion

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Top 5 Security Tokens to Invest In - Opinion

Below are the top 5 security tokens which I personally believe have the most potential for liquidity and future growth. As a disclaimer, I’m a token holder in all the investments listed below. No financial compensation was given for this article. This is based exclusively on my personal opinion.

#5 – Lottery.com

This was one of the earliest STOs in the space. The vision is to raise billions of dollars to help solve the most pressing humanitarian needs across the globe using global charitable raffles. They offer token holders 7% revenue share on all ticket sales.

Some of the notable investors behind this project include:

  • Pantera Capital – Joey Krug (co-chief Investment officer).
  • Paraag Marathe (Chief Strategy Officer EVP, SF 49rs).
  • Bruce Gibney (Founders Fund, seed investor of PayPal).

What’s impressive with this project is the current progress that they have made which includes:

  • The world’s largest lottery results and information provider to the digital media sector for U.S. and North American lottery games, including Google and Amazon Alexa.
  • Provider of lottery results in more than 30 countries worldwide.
  • In the US Lottery.com is a premier mobile lottery play service with multiple state approvals.

This token can be purchased on the OpenFinance platform.

 

#4 – tZERO

tZERO is working on building a regulated exchange for trading security tokens and digital securities. They are taking their time on developing this platform as they wish to ensure that they are fully legally compliant. Think of tZERO as the Binance of regulated security tokens.

If they succeed in their stated mission, they will become a market leader in the digital securities space. Being fully regulated institutional investors and banks will be able to use this platform for all their exchange needs.

We have reported on tZERO frequently including the painful due diligence process which is slowing the launch of the platform. Being fully legally compliant is a positive thing, and we prefer that they take things slow to ensure full compliance and legality.

This token can be purchased directly on the tZERO platform.

 

#3 – 22x Fund

22X Fund invested in 30 pre-vetted start-ups that were part of Batch 22 of the 500 Startups early-stage venture fund and seed accelerator program. 500 Startups have invested in over 1200 companies, some of these notable investments include Udemy, Visual.ly, Canva, Twilio, talkdesk, & ipsy.

All 22X Fund companies are part of Batch 22 from 500 Startups which took place in San Francisco in summer/fall of 2017. The 500 Startups Accelerator has a ~2% acceptance rate. The majority have raised previous funding and are revenue generating.

Batch22 focuses on FinTech (9 companies), Data (7 companies), and Digital Health (4 companies). The list can be found here.

Investors receive tokens in 22X which will own between 2.5% to 10% of the equity in each 22X portfolio company.

This token can be purchased on the OpenFinance platform.

 

#2 – Blockchain Capital

This was the initial security token that started the revolution. BCAP tokens represent tokens in a venture fund managed by Blockchain Capital.

Blockchain Capital really needs no introduction when it comes to blockchain. They were founded in 2013 and have such notable investments as ABRA, Augur, Bancor, BitFuty, BitGo, Block.one, BlockStream, Coinbase, Ethereum, Harbor, Kraken, Ripple, Securitize, & Templum.

The BCAP token was launched in April 2017 and raised $10M in six hours.

In June, 2019 Coinbase Custody announced support for the BCAP token. The importance of this news cannot be understated, as this is the first security token to be supported by Coinbase.

This token can be purchased on the OpenFinance platform.

 

#1 – SpiceVC

My personal favorite is SpiceVC and this token is managed by an experienced team that are heavily involved in the digital securities space. They are investing in the future of security tokens and digital securities. Their most notable investment is in Securitize. Securitize is the token issuer that has shown the most traction when it comes to tokenizing security tokens. They have directly tokenized, or offered tokenization services to the bulk of the companies on this list.

Other notable investments by SpiceVC include:

  • SAGA – An upcoming stable currency
  • Slice – The tokenization of real estate
  • ROX – Tokenization of commercial real estate.
  • Archax – A digital securities exchange to be launched in London, UK.
  • Lottery.com – An online lottery security token.
  • Bakkt – A digital assets security exchange company created by ICE, the owners of the New York Stock Exchange. Bakkt is one of the most anticipated exchanges in the cryptocurrency space and has the potential to bring in institutional grade investments into Bitcoin and cryptocurrency.

This token can be purchased on the OpenFinance platform.

Disclaimer:

Securities.io is not is not licensed by or registered with the U.S. Securities and Exchange Commission, FINRA, or any other financial services regulator. Specifically, Securities.io is not a FINRA registered Broker Dealer and does not offer or sell securities, or engage in any other Broker Dealer activity. Nothing in this website constitutes an offer, distribution, solicitation, or marketing of any security.

Furthermore, Securities.io is not an exchange, alternative trading system, escrow agent or transfer agent. Securities.io does not provide legal, accounting, tax, or regulatory advice, or hold custody of any cash, virtual currency, security token or other digital asset for or on behalf of any third party.

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Security Tokens vs Tokenized Securities – Thought Leaders

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Security Tokens vs Tokenized Securities - Thought Leaders

Since crypto is a growing industry, there still are a lot of words and concepts that are unclear to a large audience. In fact, many users struggle due to the presence of confusing jargon.

Most people still do not know what blockchain is or why it is called a blockchain. While it can be a confusing term to understand, there’s no denying the fact that blockchain is massive.

It’s important that you are well aware of all the terms used in the industry if you want to be the master of cryptos. Today, we are going to talk about security tokens and tokenized securities.

Introduction To Security Tokens and Tokenized Securities

As confusing as may sound, both the terms refer to two very different concepts. I have read a lot of articles and news pieces regarding security tokens. From my understanding, the term refers to a wide variety of assets based on blockchain.

A consultation paper published by the Financial Conduct Authority in the UK verified the meaning of the term. The paper mainly discussed the regulation and classification of crypto assets defined ‘security token’ as a recognized investment or asset concept.

Now that the meaning of security token is clear, we need to move to tokenized securities. A lot of people believe these terms are interchangeable when in reality they are not.

They refer to two different concepts and using one in place of another can lead to confusion. They imply different regulations, investors, and constructs. Hence, it is important to be aware of the difference between the two so you make no mistakes in using the right term.

Security Token and Tokenized Security – The Difference

The difference doesn’t lie in grammar. It may look like a shift from active to passive but there’s more here.

Security Token: In this phrase, “security” is the adjective and “token” is the noun. It refers to a new technology that shares some qualities with traditional securities.

Technology is the main focus in this case. Not all tokens are referred to as securities. In fact, regulators appear to be confused about the classification of some new tokens due to their novel concepts.

If it pays dividend then it’s considered a security. A security token does not necessarily have a utility. It offers tangible benefits and represents a share in the company behind the token. This is why security tokens are also known as equity tokens.

Moreover, security tokens are different from utility tokens. They are either filed under an exemption or registered with an authority. Due to this, security tokens can be used outside of blockchain projects.

Tokenized Security: In this phrase, “token” is an adjective, whereas “security” is the noun. It refers to a traditional security or asset that comes wrapped in the latest technology.

All tokens are considered securities in this case. They work quite like off-blockchain assets but use a different set of technology to work.

Here, the main focus is on ‘use case’ and not the technology used. This is why such tokens are easy to regulate.

After all, it is easy to understand and categorize a traditional security that’s traded differently.

Given the huge difference between the two, it would not be fair to confuse the names.

The Authorities Involved

The Security and Exchange Commission (SEC) regulates security tokens. However, the relationship between the SEC and digital coins seems to be a bit confusing.

A transaction will be considered a security if:

  • Money is invested.
  • Profit is expected.
  • Efforts are required.
  • A common enterprise is involved.

The situation became clear in 2016 when Ethereum lost about half its value due to a major hack. This caused a sit in the industry, forcing the SEC to think about the future of digital tokens.

Last year, the SEC sent a letter to Ted Budd talking about digital assets and how they should be dealt with. While the response to the letter cleared a few things, most experts agree that the position of digital securities is still not fully clear.

Many organizations are also jumping the bandwagon. The Swiss Exchange recently announced plans to build an exchange for tokenized securities. According to FINMA, the exchange will be properly regulated.

Most experts believe that the involvement of such big names is a good sign for the industry but we’re not yet sure of how this will play out.

Take a Step Ahead

Tokenized securities are designed to broaden the market while also enhancing liquidity. It’s the same as using a known asset and putting a digital wrapper around it.

It’s not a new product from the perspective of regulators. It’s merely a new distribution channel, which makes approval easier.

On the other hand, it’s a different ballgame when it comes to security tokens. They present a new challenge for investors and regulators as it is hard to figure out the risks and ramifications involved in dealing with them.

Tokenized securities are highly innovative and have their own place in the industry. We may see more such securities hit the market in the near future. It’s actually good for the industry as the huge supply will enable traders to get a grasp of things and understand how it works.

Advantages of Security Tokens and Tokenized Securities

You will realize that a lot of the benefits are similar in nature.

Security tokens offer more liquidity by enabling fractional ownership and lowering minimum investments. More people will be able to invest due to lower requirements. Businesses are also taking advantages. A good example would be Mayfair Gallery, which put its art collection for sale on the blockchain.

Similarly, tokenized securities are more efficient and scalable. Security tokens help reduce cost, simplify auditing, reduce paperwork, lower issuance fees, etc.

Other benefits include transparency and ease.

The Legal Aspect of  Things

Since security tokens are subject to federal regulations, they are compliant. You need to be aware of three regulations:

Regulation A+: This allows investors to offer an SEC-qualified security to non-accredited investors (max $50,000,000). Due to registration requirements, such issuance can take longer and also cost more than other options. Plus, it requires qualification of a Form A-1. Moreover, the amount of money you raise is also considered revenue and hence is taxed unless it represents equity in the company.

Regulation D: This requires an electronic filing of “Form D” without needing registration with the SEC. The seller may solicit investors for offerings that meet the requirements found in Section 506c. This part of the law requires the offerer to be true and accredited.

Regulation S: This comes into play when a security is executed outside of the US and hence is not subjected to the 1993 Act. However, issuers are still required to follow the laws of the country where the security is offered.

What It Really Means

You can draw some analogies when it comes to tokenized securities. Think of print magazines and how they’re now available online. The format is the same but the reach has increased due to more access.

Security tokens work similarly. It’s a concept that nobody saw coming. At the end of the day, both concepts will change capital markets and improve access. However, only one will have a lasting impact and change how we look at capital markets.

Conclusion

Security tokens need space and support to stay strong. It’s important to be clear about what the term means. We’ll, however, not be able to enjoy the benefits of these concepts if we are not able to differentiate between the two. Beyond linguistic differences, what’s more important is vital aspects as liquidity and more institutional grade Reg A+ offerings which will bring more confidence to the market. 

Education and investor protection are vital elements of the ecosystem, hence at ABOTMI we work a lot on providing more solutions to increase transparency in digital asset industry. Investors who risk with their time and money deserve a seamless discovery process connecting to the most reliable and trustworthy digital asset advisors across the globe.  

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Thought Leaders

When any Asset Becomes a Digital & Immutable Proof of Ownership – Thought Leaders

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When any Asset Becomes a Digital & Immutable Proof of Ownership - Thought Leaders

Regulation

The regulatory scrutiny has morphed into a permanent reality in the crypto space. This much had become clear in early 2018. Regulators from all corners of the globe are looking to fit the crypto phenomenon into some regulatory rules or framework. The main question however is to discern what crypto assets are? And whether crypto assets are securities? If they are, then the relevant law must be applied.

In the US, Securities and Exchange Commission (SEC) had announced that all crypto assets are investment contracts or – securities. This later corrected that all, except for Bitcoin and Ethereum (in its present stage) are to be deemed securities. 2https://coincenter.org/ files/2019-03/clayton-token-response.pdf

The reality is the American legal system largely still relies on the 86 year old Securities Act, with exceptions made available with enacting the JOBS Act in 2012. And within this amendment, there is a place for security tokens to be issued as well. Small issuances of up to USD 1m can be effected as crowdfunding projects. Larger deals can be done as private placements or public offerings limited to accredited (professional or high net worth) investors. Either way, the registration of the issuing security is mandatory. It is likely that the Securities Act may see a major revamp to exclude most cryptocurrencies from the scope of federal securities law. 3https://cryptovest.com/news/bipartisan-bill-proposes-to-exclude-crypto-from-us-securities-law/ In the meantime, the most recent discussion identifies guidelines on how to assess if the publicly offered or sold digital asset is an investment contract and therefore a security. 4https://www.sec.gov/files/dlt-framework.pdf

In Europe, on the other hand, the European Securities and Markets Authority (ESMA) has called to extend Europe’s revised Markets in Financial Instruments Directive (MIFID II) to include cryptocurrency products such as initial coin offerings with securities features among transferable securities or other types of financial instruments. 5https://www.esma.europa.eu/press-news/esma-news/crypto-assets-need-common-eu-wide-approach-ensure-investor-protection European Prospectus Regulations will apply in full from 21 July 2019 and replace the current directive. Under the Regulation each EU member state will be able to set its own limit between 1 and 8 million EUR when the mandatory prospectus requirement applies.

On the brink of Brexit, the UK’s Financial Conduct Authority (FCA) published an extensive consultation paper on the classification and regulation of crypto assets. 6https://www.fca.org.uk/publication/consultation/cp19-03.pdf The paper seeks to provide regulatory clarity for firms and consumers, when certain activities around “cryptoassets” or tokens themselves fall within the FCA’s regulatory perimeter. The FCA reminds that the breach of authorisation regime is a criminal offence and carries a maximum penalty of 2 years imprisonment or an unlimited fine, or both. Following the consultation period, FCA intends to publish the final Policy Statement in relation to cryptoassets by summer 2019.

Other pioneering jurisdictions, such as Switzerland, Malta, Estonia, Lithuania, Liechtenstein have reviewed the types of crypto assets and proposed a classification thereof.

All the above mentioned jurisdictions offer more-or-less similar classification of tokens. Largely separating tree or four types. It is a matter of not so distant future, when every national regulatory body will be compelled to put out their opinion or guidelines on the subject.

Tokenisation digital and immutable proof of ownership

The rise and fall of the ICO exuberance has resulted in setting a firm precedent in demand for tokenisation. It has also set an example for how the future of securities will likely look. There will always be a law governing securities issuance. But there also will be a decentralised reflection of the issued securities on the blockchain. With transparent protocol implementation, everyone should be able to access smart contract specifications and assess overall market interest.

The IEO or initial exchange offering appeared to remedy some of the most lacking aspects of a typical ICO, such as reliability, custodianship, vetting, transaction speed, cost, and sales channels. But it is yet to be seen, if it turns out to be the most appropriate utility token issuance method. After all, tokenisation is adding to a healthy competition amongst issuers and issuance platforms.

A legacy exchange listing cannot be applied to tokenised securities. Legacy exchanges lack understanding of the underlying technology and regulatory clearance. This is why there are many new technologically advanced initiatives, looking to set up a regulated space for security token listing and secondary market.

For a small-capital company a KYC/AML compliant STO campaign can be considered as an alternative way to access funding. Tokenising businesses by offering equity tokens, revenue sharing or raising capital with debt tokens may become an inevitable part of a company funding life cycle. A security token offering may be equaled to initial or subsequent equity or debt offering in the form of a digital token.

When asset becomes a digital and immutable proof of ownership to a global community, that is when we have created a democratic access for everyone to participate in the growth of the global economy. Today, not all countries have harmonised securities laws. But we are well on the way to lowering barriers of entry for both investors and issuers.

About the author

Liza Aizupiete, the Managing Director of Fintelum, which serves the crypto industry by carrying out a technically sound and KYC/AML compliant token sale process, crypto funds co-custody, transfer agency, secondary token OTC desk and corporate actions.

Previously Liza was a founder and the Managing Director of a cyptocurrency exchange Globitex, as well as the General Director of Lithuanian e-money institution NexPay UAB. A Latvian native, Liza graduated from the University of Geneva, Switzerland, majoring in Philosophy. Liza is experienced in the financial industry, including trading, fund and portfolio management. Since 2012, she has become passionate about Bitcoin and later crypto industry at large, as a proponent of a decentralised and sound monetary system.

About Fintelum

Fintelum is a comprehensive ICO/STO token launch platform for businesses looking to tokenise their assets in the form of utility, equity, debt and other asset or revenue sharing token. Fintelum suite of services comprises a regulated KYC investor onboarding, and continuous compliance with the EU AML laws. The token sale process can be followed through a tailor made dashboard. The backoffice system allows data access and management as well as on-demand reporting. In addition, to help mitigate token sale process risks, Fintelum acts as a crypto currency co-custodian. The system incorporates an integrated multi signature cold/hot wallets. To serve the security token industry, Fintelum acts as a transfer agent, ensuring security token ownership amongst whitelisted investors. Fintelum is also able to provide secondary token OTC exchange desk functions, with ongoing corporate action services, such as voting, dividends and announcements.

Learn more at https://www.fintelum.com


 

This is part 5 of a 5 part series.

Click here for part 1

Click Here for Part 2

Click Here for Part 3

Click Here for Part 4

 

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