Tokenizing Assets and Securities (STOs)

We are in the next financial services revolution. Digitization and Distributed Ledger Technology is combining to create new value and opportunities for a more efficient global marketplace for investment opportunities which will impact many sectors and market participants.

The ‘tokenization of securities’ is an important next step for the Token Economy and wider financial markets.

The tokenization of a security or asset, is a process to allow potentially faster, cheaper and more programmable formats of the underlying asset or instrument to be transferable between eligible parties within a ‘digital wrapper’.

Using the technology...

  • To expand the options for designing and trading securities
  • Fractionalize and Tokenize a range of Assets
  • Building on the demand and interest shown from ICO phase 1
  • Using existing Securities Regulations
  • Creating new efficiencies (speed, cost) in the process

...to create new value and markets

  • Create new liquidity and ‘untrap’ value in a wide variety of existing assets
  • Aid the emergence of new asset classes
  • Enabling more types of investors to participate on a regulated basis
  • Needed: the regulated exchanges to trade 24/7 - new, existing ones
Why Tokenize?

The benefits will vary between different use-cases (debt, equity, fractional ownership of assets etc.) and will evolve over time. However benefits cited include broader and cheaper access to larger global pools of capital for issuers - lower fees, faster deal execution, enhanced international market exposure, accessing a larger potential investor base, enabling automated service functions and a reduced role for middlemen and a reduction in the potential for financial institution manipulation. It is also a potentially more ‘programmable’ form of ownership and over time we expect to see enhancements to existing instruments and investment models as well as innovation in what is offered to investors, in tokenized form.

It’s still has to appeal as an Investment

Tokenization or ‘doing’ an STO does not turn an ugly duckling into a swan. Put another way, ‘tokenization’ in and of itself does not turn create substantial new value where none existed before.

Coordinated advice and services are needed

Undertaking an STO without legal, technology and investment advisors who are coordinated in the delivery of the process is unlikely to succeed. In short:

  • The asset and the terms on which the investment opportunity is offered, should first be attractive to the target eligible investors.
  • The issuer and its advisers must be confident that the rights it offers can be delivered and that the issue is in line with its business strategy.
  • Tokenizing debt, equity, or the sorts of rights normally associated with shares in a company or fund are regulated activities. Existing securities laws and those relating to collective investment schemes, alternative investment funds and more, may apply. Issuers must invest early in appropriate legal advice - in the jurisdiction of the issuing entity and from the perspective of where the offer is being promoted and for the types of investor targeted - accredited, institutional, retail and with respect to any exempt offerings or other routes to a legally compliant offering.
  • The technology and processes must then enshrine and facilitate consistently the rights, restrictions and parameters that apply to the underlying asset.
  • The processes associated with maintaining the digital asset, associated documentation and enabling transferability (peer-to-peer, OTC or Exchange) must be supported and managed.