2020, Assets Tokenization, and Security Token Offerings

Jan 16, 2020

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Since its inception blockchain technology has disrupted financial markets globally that it is considered today as the most massive wealth creation event over the last decade.

As 2020 begins, to this date blockchain projects raised over 26.5 billion U.S. dollars in investment funding globally since the first token sale was held by Mastercoin in 2013. Financial experts expects it to grow further to $60 billion by 2024. 

The significance of blockchain technology was recognized by both the public and the private sector where government and corporate spending on blockchain solutions reached 2.9 billion U.S. dollars in 2019 alone, which is a 88.7% increase over the previous year and it is forecasted to reach $12.4 billion by 2022 according to the International Data Corporation (IDC).

Asset Tokenization

Blockchain technology changed the financial industry with the introduction of Asset Tokenization which is dramatically changing how we invest in various assets. This breakthrough technology is converting different asset types into a storable, movable, and recordable token on the blockchain. 

Proponents of asset tokenization want to use blockchain technology to enhance existing systems of trading investments. Complete reliance on blockchain makes tokenized assets liquid and easily tradable. It is quite the same as how electronic transactions have revolutionized paper-based commodity exchanges, minus the overhead.

Tokenization also offers vast benefits such as faster ownership transfers and settlements, trading of intangible goods like patents, copyrights, and assets with voting rights. Assets tokenization however face a lot of hurdles, there are legal challenges and changes required to make digital transfers of several physical assets possible.

Security Tokens and Security token offerings (STOs)

A security token is one application of asset tokenization where a security is represented by a token on the blockchain. A security token can represent different kinds of securities including bonds, stocks, assets that are dividend-paying, investment contracts and others. The token represents a legal right of ownership and are compliant with the with regulatory governance of the issuing jurisdiction.

Security tokens are issued during Security token offerings (STOs), which is a form of public offering where tokenized digital securities are sold to investors.

It is believed among some analysts that security tokens represent the future claiming that it will abrogate the old-fashioned way of how financial markets work.

However, the transition to a blockchain financial world is not easy, lack of awareness, understanding asset tokenization and it’s the potentials is one of the biggest hurdles to mainstream adoption. In addition, large corporations and banks lack the infrastructure necessary for widespread use tokenized assets. Finally only a small number of investors are willing to take the leap and be part of this financial revolution.

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