“In 2020, the security token industry will appear, and be, more connected, more compliant and thus more accessible. The elusive quest for clarity with respect to securities law should mostly come to an end by the close of 2020.
“The first half of 2020 is going to be dominated by discussions between leading platforms and the regulatory bodies that have maintained their focus on investor protection.
“As increasingly less skeptical regulators start to provide clear guidance in the second half of 2020 to technology providers and issuers, data management platforms with compliant APIs and attendant data handling mechanisms will come to the forefront.
“These data management platforms, clearly integrated with broker-dealers, custodians and trading platforms will drive the market forward while providing their joint issuer and investor clients with the confidence to choose a digital path.”
“I expect that 2020 will see greater momentum of security tokens as early players in the space refine their security token technology.
“Financial institutions will also have a greater impact in the space as they conduct further test offerings using the technology. The smaller, earlier players risk being left behind if they are unable to work with financial institutions in 2020 and 2021.
“2020 will also be a battleground for various blockchains, including blockchains designed primarily for the securities industry. It will be interesting to see the trends that develop in that regard.”
“Trust. 2020 has to be the year of building trust. If we do not accomplish this goal, investors will not invest in companies that take advantage of this form of capital raising. To gain trust, the key will be to bring everyone together and not leave anyone out.
“Since we lost trust with investors, the current incumbents in the ecosystem will be in a reactive mode as more of the providers realize they need to be regulated. They are busy becoming broker-dealers or transfer agents, thus competing with current providers in this new emergence.
“Departures. 2020 is the year when many of the first entrants will face the stark reality that it will take many years before what everyone has envisioned becomes reality.
“M&A. 2020 will be the year of M&A within the sector as there are currently too many providers for the size of market. We have already seen in 2019 many providers falling off.
“Incumbents. The current global incumbents in the private capital markets will begin to emerge with their own solutions and looking to work with providers who are not threatening to take them out of the process. This will be the key to mass adoption globally.”
“We believe financial institutions are now all convinced tokenization will happen. There is mounting pressure on margins for these players, and regulation is becoming stricter and more difficult to follow for these firms.
“Change is needed, and central banks announcing digital currencies will encourage the adoption. We believe it will happen faster than previously expected, and financial institutions will go past the testing phase as we have seen many of them announced this year and roll out of some of the initiatives.”
“The biggest challenge is the gap between traditional financial services and the yet-to-develop tokenization markets. The gap remains in terms of market liquidity, user experience, cost structures, availability of high-quality assets, and the convenience and trustworthiness of retail investment options. But this will change in 2020.
“Previously, most security token offerings have been exempt offerings and are only available to qualified investors. But in 2020, as issuance platforms mature, compliance tools proliferate and regulatory certainty solidifies, publicly traded assets will soon be available as tokenized securities.
“As issuance costs fall to a few basis points and back-office reconciliation costs are eliminated, tokenization will compete on price with mature and trusted institutional models – bringing new trustworthy assets into tokenized markets. In turn, institutional assets that can be easily priced will bring market liquidity. Market liquidity begets convenient transactions.
“Without these fundamentals, the tokenization industry has yet to achieve exit velocity. But the conditions are right for the breakthrough to begin this year.”
“We are a proponent for progress and change in capital markets, and we are pushing to advance regulatory laws. However, this change will be incremental until it tips and will require complying with existing laws and regulations while in parallel working on regulatory reform.
“It is assuring to see that the regulatory landscape is progressing with the recent announcement that the SEC is proposing to update the definition of what qualifies as an accredited investor, which will increase investor access to new investments.
“I believe that in 2020, we will see more traction from both a retail and institutional perspective. For example, JP Morgan, Fidelity, Harvard Endowment Fund, Facebook and many other big players are all getting involved in the space. Stakeholders are beginning to recognize and accept the benefits that blockchain has to offer. You will see more and more of these firms form teams and departments focused on digital assets.”
“The key items are having players that everyone is comfortable with from the institutional point of view. Specifically, you need a way to get digital securities into the dashboards of major banks private banking clients.
“I don’t believe these products are really ready for retail yet, for the most part, as they are part of the alternative investment schemes and are less liquid, and so they probably don’t suit a retail investor right now.”
“We already are seeing adoption in both retail and institutional. It's important to note the difference between the sell-side and buy-side.
“Retail sell-side is seeing a fair amount of adoption, but retail buy-side is lacking.
“Institutional quality deals will see a more balanced adoption of both the sell-side and buy-side.
“2020 will see increased interest across the board, but will not likely be the breakout year.”
“The asset class that makes the most sense for regulated tokenization is real estate. Not only is real estate the largest asset class by category, it also suffers the biggest problems related to data management and liquidity.
“The team at Vertalo is very excited to focus on the real estate vertical in 2020, and will be announcing some big initiatives in this arena, including a close partnership with Prime Trust where we will be digitizing billions of dollars of private REITs (real estate investment trusts) using a new platform that we are jointly developing called ‘TREATs’.
“Private REITs is a huge cottage industry that is still run by spreadsheets, fax machines, and costly purchase and redemption processes. The cost-benefit improvements that can be enabled by the digitization of real estate assets will far outweigh the cost of the technology.”
“The asset class that may have the most traction in 2020 will be digital securities of various types, including equity and debt.
“The more complicated derivatives may soon follow. This is because there is a well-established, though complex securities regulation and corporate law in almost all jurisdictions.
“Tokenization of other assets such as fine art may take longer because the questions of trust, custody and protection need to be answered first.”
“We’re excited about the tokenization of publicly traded assets. The disclosure requirements, strong pricing signal and existing liquidity of these assets will bring much needed liquidity to the security token markets.
“These assets, backed by some of the most known and trusted financial service providers, will create the liquidity and trust needed for the foundation of the security token industry.”
“We are excited about the launch of the first regulated national security token exchange through our joint venture, the BSTX, in partnership with BOX.
“With BOX’s experience in building and operating a sophisticated securities exchange and tZERO’s industry-leading blockchain technology, we have brought together our organizations’ combined expertise to fundamentally improve the marketplace for digital securities. We expect this to launch in 2020.”
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“Starting to see high-quality deals move to become tokenized without the tokenization being a feature.
“In 2020, we will see growth in great assets being on-chain all over the world, and we will see increased liquidity as the current asset pools age and have more of a vintage.”
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