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The Pros and Cons of Security Tokens

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Pros and Cons of Security Tokens

Security tokens continue to reshape the way we conduct business on a global scale. These unique tokens provide companies and investors with a regulated way to enter the crypto space. When a company launches a security token it’s called an STO, or security token offering. Understanding the pros and cons of security tokens makes you a better-informed investor.

Regulatory integration is a huge step forward for the cryptospace. It allows traditional business models to convert over to more efficient blockchain-based structures. While this approach is perfect for many types of business models, it doesn’t always make sense due to some of the drawbacks security tokens contain. Let’s take a moment to examine the pros and cons of security tokens to get a better understanding of these amazing tokens true capabilities and limitations.

Pros of Security Tokens

Security tokens allow traditional business transactions to be tokenized while still meeting the regulatory requirements set in place for the industry in question. Tokenization is the process of transferring an item to the blockchain. For example, a security token can represent ownership rights in a property.

Transferring property ownership rights requires that all parties involved in the transaction meet certain related regulatory requirements. Security tokens have the ability to integrate these regulations directly into their core protocol. In September of this year, the security token launch platform Polymath partnered with BlockEstate to begin the tokenization of the real estate market.

Polymath via Homepage

Polymath via Homepage

Reducing Investment Thresholds

Security tokens are a powerful fundraising tool which allows companies to lower their minimum investment requirements to nearly non-existent. In the past, companies were forced to require that participating investors provide a certain level of funding to participate in their campaigns.

This situation led to the dismissal of interested parties that were unable to meet the minimum requirements. In other words, companies were unable to accept capital from millions of investors because the cost of processing the investor’s information and was too expensive.

Blockchain technology eliminates this problem by automating the majority of the process. Security tokens take the concept further and remove the regulatory workload through the use of smart contracts.

Enhancing Asset Liquidity

Security tokens provide investors with more liquidity. In its current state, there are thousands of investors locked into long-term investments in which they must wait until the maturity date to access their funds. Since many of these are long-term investments, it can leave these individuals without access to their money for years.

Security tokens can eliminate these concerns. Once a fund is tokenized, an investor can buy and sell fund shares as they see fit. This produces a more effective flow of assets and enables the development of secondary trading platforms to handle new market opportunities.

Issuance Costs

Hosting an STO is far cheaper than hosting an IPO. Companies can see upwards of 7% of their raised capital go towards issuance and transaction cost in a traditional IPO. The reasons for these high costs are simple. IPOs require the involvement of numerous third-party verification systems. Each adds a fee to the total cost of the transaction.

STOs reduce the cost of crowdfunding significantly when compared to IPOs. Blockchain technology allows companies to automate the most costly parts of their transactions. Additionally, smart contracts can automatically monitor, track, and distribute investment funds without the need of any third party intervention.

Reduced Fees

Security tokens allow companies to host international fundraising campaigns. Sending any form of fiat currency internationally can be a huge headache. Depending on the amount of funds being invested, you could see over a week in delays. Additionally, there is a risk of losing funds during the monetary conversion.

Currency Conversion Rates via Oanda

Currency Conversion Rates via Oanda

Security token investors eliminate these international costs. These tokens can be sent across the globe for no additional fees. Also, you won’t have to wait days for your blockchain transaction to complete. In most instances, the transaction takes minutes.  Best of all, there is no need to convert your funds.

Improved Market Efficiency

The transparent nature of blockchain technology improves the current market systems significantly. Security tokens provide instant monitoring capabilities. Users can easily track their tokens and investments via a blockchain monitoring application. Investors gain untethered access to their investment’s fundraising progress.

Cons of Security Tokens

No token is without its imperfections, and security tokens are no exception to this rule.  These helpful token are bridging the gap between conventional investments and the blockchain space. That being said, they are not without their limitations.

Investor Accreditation Limitations

One of the biggest drawbacks to security tokens is the inability of non-accredited investors to own them. In the US, this means that more STOs will require you to be an accredited investor as part of their SEC compliance. Unfortunately, you need to earn at least $200,000 per year, or, have at least 1 million dollars in the bank, if you want to be an accredited investor.

More Expensive than Utility Tokens

Unlike ICOs, STOs need to include a host of other organizations in their crowdfunding campaign. Underwriting companies are a perfect example of an added cost that STO participants must foot the bill for. Regulation isn’t cheap and it’s much more expensive to host an STO when compared to an ICO.

Secondary Market Trading Restrictions

Another drawback encountered by security token investors is secondary trading market restrictions. Security tokens can only be transferred via licensed platforms. The platforms must possess a security trading’s license in the country they operate in. Additionally, security tokens feature a time-lock mechanism. You can only trade these tokens between qualified investors for a predetermined amount of time after the STO.

The Pros and Cons of Security Tokens

Now that you have a better understanding of the pros and cons of security tokens, you can make an informed decision on which is the right investment for you. Remember, there isn’t a one-size-fits-all when discussing tokens and what may be the perfect fit for one business, could be a total disaster for the next.

Security tokens are the chain that links conventional markets to the cryptospace. You should expect to see explosive growth in this sector over the coming months as the advantages of blockchain technology continue to become better understood globally.

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David Hamilton is a full-time journalist and a long-time bitcoinist. He specializes in writing articles on the blockchain. His articles have been published in multiple bitcoin publications including Bitcoinlightning.com

Security Tokens

Blue Ocean Management Partners Invests in Blue Ocean Technologies

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Blue Ocean Technologies

This week, Blue Ocean Management Partners, LLC announced an investment in New York-based Blue Ocean Technologies, LLC. The firm intends to utilize its experience to provide much-needed senior management to Blue Ocean Technologies. The news showcases growing interests in the Blue Ocean platform.

Blue Ocean Technologies

Blue Ocean Tech seeks to expand the development of the after-hours markets for U.S.-listed securities, including ETFs and related securities. The new platform will provide U.S.-based traders the ability to track off-hours market movement and react accordingly. Importantly, investors will now be able to better manage risks.

Additionally, the platform provides opportunities for foreign investors to have after-hours access to the U.S. capital markets. Providing 24-hour access to the securities markets is important for a myriad of reasons. For one, it provides users with more investment opportunities. This data and technical services are critical for the functionality of numerous regulated trading venues.

Blue Ocean Technologies via Homepage

Blue Ocean Technologies via Homepage

Strategic Partnerships

Speaking on the developments, Blue Ocean Management CEO and President Ralph Layman described how the strategic partnership brings much-needed senior management resources to the platform. In turn, this experienced leadership can help guide the platform through its next growth stages.

For its part, Blue Ocean Management will provide management and expertise. The firm has experience building FinTech firms from startup. As such the company seeks to expand the support for 24-hour market access for both securities and EFTs. Together, securities and EFTs are the second largest class of investments across Asia and Europe.

Major Backing Continues

Blue Ocean management isn’t alone in its quest to further develop the off-trading hour capabilities of firms. Already, the FinTech firm managed to secure support from some of the largest players in the game. One such investor is tZERO.

tZERO

Earlier in the year, Overstock.com’s blockchain subsidiary tZERO became another major backer in the Blue Ocean platform. tZERO is a market pioneer in the space and their backing showcases the true potential that Blue Ocean’s 24-hour strategy possesses.  tZERO has filed numerous blockchain patents over the last two years. The firm is at the forefront of blockchain adoption.

Discussing the investment strategy, tZERO’s CEO, Saum Noursalehi praised the new partnership. He explained how the maneuver allows tZERO to “focus on its important strategic initiatives with digital securities.” tZERO seeks to tokenize the traditional financial markets over the next 5-10 years.

Blue Ocean Moves Forward

As the more industries migrate to a blockchain-based system, it’s important that developers create the ecosystem to support the robust capabilities of these new platforms.  Both analysts and traders agree that 24-hour access to markets is one of the best ways to spur growth. This line of thought becomes more evident when you consider that this new strategy opens up the US market to international investors in a way previously unimaginable.

The Blue Ocean platform brings greater efficiency and transparency to capital markets. In this way, analysts predict the platform to be disruptive to the current systems. You can expect to hear more from this unique platform as development continues over the coming months.

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BnkToTheFuture Eyes U.S. Based STOs through BMI Capital Investment

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bmi capital

Strategic Investment

Recently, BnkToTheFuture has shed light on their future aspirations through a new investment. This move saw the Cayman Islands based company acquire a stake in United States based broker/dealer, BMI Capital.

By acquiring a stake in the company, BnkToTheFuture now gains the ability to make use of existing licensure held by BMI Capital – including their status as a registered broker/dealer.

U.S. Expansion

With the future of blockchain holding a global appeal, many industry participants have announced their intent for expansion beyond their own borders.

The following articles demonstrate a few of these decisions, as companies beyond BnkToTheFuture look to enter foreign countries.

Smartlands Sets for Expansion into U.S. with New Agreement

DigiMax Eyes European Expansion through Black Manta Partnership

Broker/Dealer

The importance of becoming a broker/dealer, by proxy or otherwise, cannot be understated. The designation allows for a company, such as BnkToTheFuture, to expand their services to include the buying and selling of securities.

For more information on the role assumed by broker/dealers, make sure to check out our terminology page.

What is a Broker/Dealer

Commentary

BnkToTheFuture CEO, Simon Dixon, recently spoke with CoinDesk regarding the future of security tokens. He stated,

“We forecast by 2020 up to 50 percent will opt for an innovative security token that improves the potential for returns for investors over traditional equity. We are aiming to build a new industry and asset class.”

Building a Foundation

Over the past few months, any have noted that the digital securities sector is slow to take off. With other capital generation events, such as ICOs, having experienced rapid growth in the past, many expected the same from digital securities.

A growing amount of companies have entered the sector from various points around the world. Each of these companies are hard at work developing the necessary infrastructure to support future growth.

It is important to recognize, however, that STOs are completed in a regulatory compliant manner, which requires participants to hold a variety of designations, such as that of a broker/dealer. Attaining these capabilities takes time.

The companies involved are not trying to run before they walk. A more strategic approach is being taken to ensure that the industry is ripe for growth when true adoption occurs.

BnkToTheFuture

Founded in 2011, BnkToTheFuture is a Cayman Islands based investment platform. The company specializes in utilizing new technologies, such as blockchain, to facilitate the offering of high potential opportunities for investors and companies alike.

BMI Capital

This United States based investment firm which was founded in 2012. With licensure attained through FINRA, BMI Capital is able to operate as a broker/dealer.

CEO, Robert H. Trapp, currently oversees company operations.

In Other News

Over the course of the last year, we have covered events pertaining to BnkToTheFuture on various occasions. The following articles share insights into a few of these events.

BnkToTheFuture Invests in Blockchain Consultancy Firm, Diacle

BnkToTheFuture to Utilize Altcoin.io for Security Token Exchange

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Security Tokens

Legend Siam Security Token Offering Facilitated by VEWC

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Legend Siam Security Token Offering Facilitated by VEWC

Curated STO

Via East West Capital has recently opened up regarding an STO which they curated recently. This STO was a capital generation event which saw the distribution of tokenized securities associated with a cultural theme park in Thailand, known as Legend Siam.

Legend Siam Tokens

In this event, investors gained access to what the issuer calls ‘Legend Siam Tokens (LST)’. These tokens were treated as securities, and were offered through Reg. D guidelines under the SEC.

While details on the tokens, themselves, are scarce at this time, it appears as though they took shape as some type of real-estate backed token, based on the cultural theme park.

Expanding Exposure

As the digital securities sector continues to develop, participants are being drawn in from new, interesting markets. In the past year we have reported on STO opportunities surrounding, but not limited to, the following industries.

With the announcement surrounding Legend Siam, we can now add ‘Theme Park’ and Commercial Real Estate to that list.

Commentary

Via East West CEO, Oh Shen King, took the time to elaborate on STOs, stating,

“We predict a rise in the potential and demand for tokenized securities because digital ownership on the blockchain provides so many advantages over legacy investments, and tech-savvy investors are seeing the value proposition in real-time…This addition to our business is just a natural extension of our vision for a crowd-financed world, and we provide 100% transparency to all our investors.”

Via East West Capital

Operating out of Southeast Asia, Via East West Capital is an investment firm focused on ‘tokenized asset investments’.

CEO, Oh Shen King, currently oversees company operations.

Legend Siam

Legend Siam is a well-known attraction in Thailand. It operates as a popular theme park, built with the intention of promoting Thai history and culture.

In their release, it is indicated that the park now spans over 65 acres, with hundreds of shops, and various attractions. In total, the park now has an estimated worth of over $131 million.

In Other News

Thailand has made it obvious that they are vying to become a leader in the blockchain industry, including digital securities. This much was made evident in a recent decision by their government to potentially legalize security tokens. In addition to this, there have been various blockchain based companies welcomed into the MAS FinTech Sandbox.

Thai Government Moves to Legalize Security Tokens

MAS Fintech Sandbox Welcomes Capital Markets Platform ‘iSTOX’

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