Q&A: The coming era of security token offerings

Securities token offerings (STOs) are being hailed as the next big phenomenon in blockchain technology. The digitization of assets is widely seen as reshaping the landscape of finance. We speak to Carlos Domingo, founder and CEO of Securitize, on how realistic are the expectations and what are some of the key issues governing STOs.

 

BAR:When will security tokens take up and go mainstream?

CD: Private investment markets are traditionally not mainstream by design. It’s important to remember that a digital security (or security token) is still a traditional security, the only difference is the digitized security is more efficiently managed and has peer-to-peer level liquidity because it can be traded on the global markets via the blockchain. We anticipate an increase in investor interest and excitement once digital securities begin to be traded on public blockchains. This will happen soon as there are tokens already issued on-chain (SPiCE VC, BlockchainCapital and 22x) and exchanges and marketplaces like OpenFinance and Sharespost poised to open trading very soon. The other piece that needs to be solved is custody and we are also excited about the entrance to the space as qualified custodians of big names like Coinbase or Kingdom Trust.

BAR: Which sectors will go first?

CD: Funds are very suited for digital securities, as are certain real estate deals. We have companies digitizing securities that range from private airlines to massive Bitcoin mining operations. It’s hard to say which sector will go first with so much variety, but what we’re seeing so far is that funds and real estate are leading the way to date. The more illiquid a market and the more complex the compliance rules are (like REITs for instance) the more suited are digital securities to improve the current situation.

BAR: Which jurisdictions will lead the way?

CD: Regulations around the world are all different, which is why issuing a digital security is such a complex endeavor. Security tokens are already legal because they are nothing else than securities and all markets already have laws about how to market and purchase securities. The US has one advantage because you can do general solicitation of unregistered securities which is typically prohibited in other countries and even though that limits you to accredited investors, that is still a very large pool of investors to tap into that today have not access to many private deals.

BAR: Who will be the winners and the losers?

CD: The winners will be the investors and the issuers on equal terms. By making the process of raising capital more efficient and liquid, everyone wins. The losers will be the traditional financial intermediaries like clearing houses, central counter-party risk managers, transfer agents, central securities depositories, etc. that will be either eliminated or disrupted by the instant settlement and traceability of digital securities on the blockchain.

 

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