The trading platform Dx.Exchange has recently announced the opening of cryptocurrency trading platform with tokenized stocks. This will allow investors from all over the world to trade in such companies as Tesla, Google, Facebook, Apple, and more even when the stock markets are closed.
Industry observers see this as a big step towards Blockchain implementation on a serious level. But why would you want to trade tech stock using security tokens? Let’s take a deeper look into it:
The year of security tokens
The year 2018 has been awful for the whole crypto industry and ICOs in particular. After reaching its highest at the beginning of January, the overall market capitalization has lost more than 80% of its value by the end of the year.
One of the core reasons for such a decline is that most ICOs conducted in 2017 couldn’t have provided any sustainable results and their utility tokens proved to be worthless.
In the light of such drastic fall, security tokens stepped out into the light. Unlike utility tokens that can only be used within a given platform and have no value on the open market, security tokens provide their holders with much more rights. Also, they give a number of advantages when compared to traditional stock market.
Advantages of security tokens
Tokenizing assets on the blockchain makes the life easier both for issuing companies and for their investors. Here are the benefits that both sides of the deal get.
The main deficiency of the traditional stock market is the time limitation as you can only buy and sell stocks within a specified timeframe. During the night or on weekends when trading is disabled anything can happen to the issuing company and the price of the stocks may drop. But you will only find it out on the next day.
With cryptocurrency-based tokens, you have access to the trading platform online without any breaks. This allows you to operatively react to all the events and make trades throughout the whole week.
Moving assets to the tokenized model helps the issuing company to significantly reduce expenses. Conducting a traditional IPO (Initial Public Offering) not only costs a fortune, but also requires at least a year of preparation.
To issue securities on the blockchain you only need to pay salary to your IT team. The whole process takes way less time, especially if you use out-of-the-box solutions such as smart contracts’ constructors.
Remove middlemen and speed up the deals
When selling your tokens on the blockchain you don’t have to rely on any third-parties anymore. You control the whole process and the tokens are distributed automatically with the help of smart contracts.
Remove geographical borders
While traditional stocks can only be sold within country borders, security tokens on the blockchain can be distributed practically all over the world. With the exception of the countries such as China where cryptocurrencies are forbidden on the official level, you get a possibility to attract investors from almost anywhere.
Getting rid of some stocks on the traditional market may turn out to be complex and very costly, especially if you try to do this right before the liquidation of the fund.
The procedure of buying and selling tokens on a cryptocurrency exchange is way easier and less expensive. All you have to pay is the small maker-taker fee to complete the order.
Enable fractional ownership
With traditional assets, the entry barriers can be very high. For example, some stocks can guarantee you the ownership of a whole house which is not the cheapest thing to invest in and not all investors can afford to take it.
Tokenized assets, on the contrary, can be split into fractions as small as one cent or even less. Investors can buy tokens for the sum as big as they can afford.
Disadvantages of security tokens
There’s a flip side to any coin, and security tokens have their downsides as well.
No consistent regulation in different regions
The regulatory problem with cryptocurrencies and ICOs is one of the sharpest since authorities of different countries still haven’t worked out consistent legislation for this financial area. Most either do nothing or simply ban cryptocurrencies and put great obstacles on the way of companies that desire to raise funds via ICO.
Removing middlemen puts more responsibility on both sides of the deal
When you purchase security tokens there’s no middleman to set up the whole deal for you. So you have to learn how to cope with cryptocurrencies and take all the responsibility on yourself. Not all investors are ready to do that.
High volatility and the speculative nature of cryptocurrencies
Since there is no central regulator for the cryptocurrency market, most digital coins and tokens remain pretty volatile. Those who possess huge amounts of tokens, the so-called ‘whales’, can easily manipulate their price and thus leave small investors empty-handed.
High risk of fraud
The study conducted by the ICO advisory company Statis Group in July 2018 revealed that 80% of initial coin offerings were identified as scams. The new technology of raising funds not only makes life easier for investors, but for scammers as well. The untraceable nature of cryptocurrencies makes it much easier to simply get away with the raised capitals.
Tesla and more…? Future of security tokens
Tokenization of assets will surely become the main trend in the financial world for the upcoming years, although there are still many issues and concerns. The advantages it gives in comparison with all traditional means of raising capital are indisputable and the topic is not going to die down the way dotcoms did after the bubble burst in 2000’s.
The things are set in motion, huge funds and companies show interest in the blockchain technology. Too much money has already been invested in the new industry, so most likely it will only be further developed and adopted in the nearest future.
There are still many issues to resolve, but Rome wasn’t built in a day. Time is needed for new technologies to be established, but we are sure to see it all coming.