Securities Tokens Are Transforming The World Around You
What is a Securities Token?
Securities tokens are digital tokens that represent ownership of an underlying asset or security — subject to a nation’s federal securities regulations. These digital tokens will soon be issued on public networks like Ethereum or Bitcoin with in-built compliance features.
Examples of securities in the real world include Public Equity, Private Equity, Real Estate, Managed Funds, Exchange Traded Funds, Bonds, the list goes on…
Importantly, securities tokens are not to be confused with ‘utility’ tokens — which have gained a lot of attention recently for potential non-compliance with U.S Security laws. Security tokens are compliant, and legally represent ownership of an asset.
Why ‘Tokenize’ Securities?
Think dividend payments, vesting periods, distributions, shareholder voting, and more… These are tasks that teams of accountants, bankers, and lawyers would often be enforcing and instead will be automated with code in the token itself. The security becomes a computer program that can interact with its shareholders and other organisations without middlemen, significantly reducing the cost of governance and issuance.
Take Private and Public Equity as an example — Issuing equity will become as easy as clicking a button on the internet. As securities tokens mature, software will enable securities to perform functions from as simple as paying dividends, to more complex securities such as convertible debt or even credit default swaps; where the terms of the contract are hard coded into the token itself and is completely self executing.
Regulators will also be able to mandate laws or standards inside the code of the tokens themselves, allowing securities regulation to become proactive, eliminating the need for middlemen to enforce such regulations.
Tokenized Public Equity will be tradeable 24/7 and instantly settled
Major securities markets around the world generally close in the afternoon on weekdays and on weekends or public holidays. Settlement for assets often occurs between the usual hours of corporate office workers. By definition, a blockchain has no downtime and as a result, 24/7 trading and settlement will be the new default.
Ownership of tokenized securities is managed entirely by the blockchain. Owners of securities will no longer need to trust third party intermediaries to hold custody of their assets for them. Instead, they are empowered to hold the asset themselves online, with wallets that only they have access to. Assets can’t be stolen even if their password is compromised as the token itself is programmed so that it can only be transferred between specific people or entities.
The need to store and secure tokens is actually a potential disadvantage for those that prefer to trust third parties to hold their assets, however there’s an argument to be had that people will slowly remove expensive custodians and pay less fees as a result. Either way, custodial services for financial assets will evolve from ‘required’ to ‘opt in’.
Security tokens are divisible, and a security can be split into multiple tokens. This means high value single unit investments (such as real estate or art) can be fractionalised, providing further liquidity from investors that were previously priced out.
Take Real Estate as an example — You might decide to sell some equity in your family home to investors, or even own a piece of the corner shop down the road. Property exposure in one’s asset allocation will now be managed at a more granular level. Millennials will finally be able to afford their property and avocado toast too!
Lastly, no one knows which public blockchain will be the platform of choice to launch securities on, however I argue that private blockchains will slowly become irrelevant as privacy features on public ledgers improve. Public blockchains offer bleeding edge open-source software development and private companies simply can’t compete with open source software — i’m yet to learn about a private blockchain that hasn’t borrowed its technology from existing public blockchains.
If you work in finance it’s important to understand what’s coming. Our industry is about to be disrupted by a force bigger than most currently realize. This is an order of magnitude larger than the Uberisation of the taxi industry and will be just as brutal to incumbents.
We are a private equity firm specializing in growth companies. We acquire or build portfolio companies in high growth industries, deploying a proprietary crowdfunding platform and other direct to market capital formation strategies to provide growth financing for our portfolio holdings, and decades of experienced corporate management experience to maximize value for our shareholders.
We look to own companies in high growth industries, with disruptive technologies or significant market advantages, a top flight management team and a compelling strategy for exponential growth. We look for special opportunity wherever it can be found, and we bring a full array of services to our portfolio companies, including strategic growth and marketing, technology, management and long term strategic planning initiatives, grooming our companies for ultimate IPO or other liquidity event. We never stop looking for the next great opportunity, and we work tirelessly for our shareholders.
Company Name: EGW Capital Inc.
Contact: James Law
Address: 1100 Peachtree Street NE, Suite 200, Atlanta, Georgia 30309
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