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1/ Some Sunday morning thoughts on “security tokens” following the observation of @boironattorney below.
2/ First, I very much agree that you cannot say that security tokens have “flopped” at this early stage of the game. At the same time, we also cannot deny that that the take-up for security tokens from traditional cap mkts players has not lived up to the hype, as of yet.
3/ Here is how I look at it: security tokens are not a new “asset class”. They are simply a more streamlined, efficient and improved way of doing something we have done for a very long time - issuing and selling securities in the capital markets.
3a/ Note: security tokens may be used at some point to introduce new asset classes to the capital markets but, in most of these cases, the same thing could be accomplished using traditional means of offering and selling securities.
4/ Offerings of “security tokens” (or digital securities, if you prefer - I will use the term “STO”) are more a new modality for an old concept.
5/ In this sense, STOs remind me of the rise of “ride sharing“. Like STOs, ridesharing apps offered a new modality to do some thing we had all been doing for quite a long time, hailing taxis or booking them in advance.
6/ With this perspective, let’s look more closely at the analogy. @Uber in particular set out to transform personal transportation business ...
6/ ... by creating a marketplace for drivers and riders, much as STO platforms are seeking to create similar marketplaces for issuers of, and investors in, securities.
7/ Here’s the catch: when Uber got started, neither drivers and riders understood the benefits of this new modality and were resistant to change their habits which had generally speaking worked well enough.
7a/ The personal mobility market was not “broken enough“ to demand disruptive transformation.
8/ In order to change these habits and demonstrate the benefits of this new modality, Uber was able to attract huge amounts of investor capital to subsidize the formation of these markets by offering discounts to riders and incentives to drivers.
8a/ Uber also invested large amounts of their own capital in lobbying for required regulatory changes to allow their business model to function.
9/ According to the Uber S-1, between 2016 and 2018 alone, operating losses were approximately $10 billion. See: sec.gov/Archives/edgar… (p. 18).
10/ So now to STOs: I do believe that this new modality, like ridesharing app’s transforming personal transportation, is a huge step-change improvement and will be the way most securities are sold, owned and traded at some point in the future.
11/ The challenge is this: like personal transportation, the current way in which the capital markets operate is not nearly “broken enough“ for mkt participants to demand a segue to blockchain-based securities ...
11a/ ... without the use of incentives and investment in necessary regulatory change.
12/ Although we have seen not insignificant private capital come into some of the mjr players seeking to develop the space, in my view, it has not been enough to break the logjam of investors and issuers who do not yet see the benefits and need to be subsidized in order to do so.
13/ The time is now, though. Many market participants are growing weary of the “almost there” mantra that keeps being repeated.
14/ Until private capital starts pouring into this space, we need to focus and the most compelling solutions that solve the most needed problems in the capital markets .
14/ There are some really good ideas out there and we need to encourage those who are dedicating their efforts to finding and developing these solutions. [end!]
