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Following our recent Ethereum-based bond issuance I have some general observations about security tokens and blockchains:
It is certainly possible to use a public blockchain for issuing a mainstream security
The security itself still exists as an off-chain legal document that is essentially a set of rights and obligations to certain assets and/or cash flows
On-chain atomic delivery-vs-payment works and has the potential to be extraordinarily useful as a way to reduce the number of intermediaries in a transaction
Tokenized cash from high quality financial institutions is still in its infancy but we will likely see an explosion in bank coins over the coming years. Longer term, something like @fnality will solve the fungibility problem
Cryptographic key custody at regulated custodians will play a very important role in these new markets
We still need to solve for listing these instruments, secondary markets (who wants to build a DEX), liquidity, privacy, etc. But these are solvable problems IMHO.
Tokenized securities will bring a wave of financial innovation. E.g. you could now create a custom security consisting of coupon #5 from bond A, coupon #19 from bond B, coupon #27 from bond C, attach a derivative and offer it to investors that need a unique payout profile. Wow.
The big advantage of a public chain is that it is out there running. The two big public chains (Bitcoin and Ethereum) have had 100% uptime since launch and have economic incentives to continue into perpetuity.
The disadvantages are privacy and scalability. Both solvable.
The disadvantages are privacy and scalability. Both solvable.
