Thread by @_TomHoward

SECURITY TOKEN THREAD

1/ I'm not very excited about STOs right now, for reasons beyond sounding like an acronym for a scary infection.

My biggest issue with STOs right now is that they are akin to scanning a print newspaper into a PDF and calling it digital media

2/ Another large concern - many of the STOs getting shilled to me are terrible investments. From bad and failing businesses to sneaky terms such as effective 50% dilution by the managers of a REIT.

Are there any solid investments doing STOs? I've not seen one yet.

3/ Are there even any buyers? I've seen a lot of offerings but have not met anyone excited to buy an STO.

Why should they be?

What efficiencies do STOs offer? What innovations?

4/ Some use cases I've heard:

- Private equity liquidity; early employers and investors taking some chips off the table through secondary markets
- IPO into global market on day 1
- More efficient debt markets

These increase efficiencies, but aren't transformational

5/ The whitelist model currently used by popular STO standards, where the issuer must approve all token holders, does not increase efficiency at all, it just increases costs.

If purchasers must go through the standard off-chain securities process each time, what's the point?

6/ R3 Corda's private blockchain network seems to be creating some efficiencies in multi-counterparty b2b debt markets, among the trusted participants, but hardly a securities revolution.

7/ Because of current offerings in the space, I think the term STO or “Security Token” is tainted, and true innovations need to use a new term.

Instead of focusing on the fact that they happen to be securities, what if the focus was on the efficiencies created?

8/ For example, something conveying “Open global market for private equity” makes it more interesting as it leads with the benefits.

The fact that these tokens are US securities compliant is to me, not the most compelling property of those tokens.

9/ The next evolution is certainly some level of native awareness of securities laws.

Instead of issuer whitelist, every identity indicates their attested qualification for types of security offerings.

Potentially this unlocks trading liquidity by removing compliance friction.

10/ The ultimate evolution to me is a 100% on chain business where every business process is real time verifiable, making most securities regulations unnecessary as the protections are built in.

The fact that these tokens may or may not be securities becomes irrelevant.

11/ Looking at MakerDAO, which is one of the larger and more successful on-chain organizations, they theoretically aren't even a security due to the fact that MKR holders do perform some work.

But that's not what makes it interesting. It’s “post-security” in a sense.

12/ In the future, I expect to see the private/public dichotomy disappear and instead we have a % on-chain metric.

Startups stay nimble by being centralized and giving investors highly risk equity type investments.

13/ Over time, the business gets crystalized on-chain, and the token becomes less risky.

The process of "going public" is actually a process of getting everything on chain so that token holders can govern and audit the business in a trustless way.

FIN