How Tokenized Securities will Transform & Decentralize Traditional Financial Markets

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Antonio Calabrese

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Traditional markets and the traditional assets that come along with them offer individuals and organizations a host of benefits.

Assets such as real estate, stocks, and bonds are effective and safe ways to maintain and grow wealth. The issue with current financial markets doesn’t lie in their reliability– it lies in their ease-of-access (or lack of it).

Issues Within Current Financial Markets

At the present time, investors are unable to send or trade assets with each other. Things like the aforementioned real estate investments or stocks cannot be sent from person to person.

Instead, assets are tied up through third parties.

Funds, brokerages, and other similar factors keep individuals from accessing their own investments and utilizing them freely. Moving funds in these sorts of scenarios is often difficult and time-intensive.

In some cases, liquidity problems can arise as well. Large assets oftentimes don’t pull in the same quantity of investors as assets that can be divided through the use of blockchain technology. Companies in their infancy are pushed to earn, raise, and save money through venture capital; a more ideal scenario would likely involve offering early investment opportunities to institutional investors.

Problems With Unregulated Crypto

The key downside to cryptocurrency is lack of accountability. If one looks at the traditional financial market, it’s easy to see how investing in traditional assets can lead to some problems for those who need liquidity.

With that being said, there are some key benefits to operating within the regulated realm of the current financial market. If an investor purchases a stock, for example, they are guaranteed by law to receive certain voting rights and dividends. The asset’s value is clear.

The crypto market is enormously speculative and can almost feel like the wild west to those who aren’t “in the know” about the ups and downs of its inner workings. There’s often little to no framework in place that allows investors to make informed decisions. Properly evaluating a company’s price valuation, for example, is next to impossible.

Any cryptocurrency available to investors technically has no intrinsic value. Historic price surges of popular currencies (like that of Bitcoin in December of 2017) are based on little more than speculation; arguments have been made that cryptocurrencies are essentially all bubbles– or assets that trade for prices strongly exceeding their intrinsic value.

It often takes little to no change in markets for bubbles such as these to burst.

How Tokenizing Securities Can Solve These Issues

In order to understand how tokenizing securities can help solve some of the aforementioned issues, you’ll need to understand what a tokenized security is; it’s also critical to understand that a tokenized security is different from a security token.

security token is a new technology representation (the token) that shares some similar qualities with more traditional securities. When it comes to security tokens, emphasis is generally placed on the new technology aspect of the equation. Some tokens are classified as securities and some are not.

tokenized security, on the other hand, is a traditional asset (a security) packaged and delivered to investors in a new technology. Tokenized securities are, obviously, securities– they simply run using different technologies than the traditional securities that we’re used to.

Tokenized securities enable investors to send cryptocurrency and receive a token in return. This token is backed by real-world value. The realm of tokenized securities is especially beneficial to those interest in fractional investments in real estate. As the offspring of blockchain technology and an effective, traditional financial system, tokenized securities may be the solution of the future for problems on both sides of the line.

Tokenized securities are a way to broaden markets and enhance investor’s liquidity options. It’s less a new product or concept and more of a new distribution channel. Because the risks associated with them have already been studied and worked through, they’re often much easier to implement than security tokens. This means that investors will likely see a wealth of tokenized securities enter the market.

Projects Focusing on the Tokenization of Securities

There are a variety of companies focused on bringing tokenized securities into the average investor’s reality (this is not an endorsement of any company).

Polymath

The Polymath team is seeking to incite issuers, investors, and service providers alike to create and utilize security tokens. They believe that issuers should create security tokens for three key reasons: liquidity, efficiency, and transparency. Polymath wants more issuers to bring liquidity to markets and allow for private securities to be sold to a global pool of investors. Polymath’s code is also open-source, meaning that anybody can review and audit it– a step in the right direction for transparency.

Investors, according to Polymath, will benefit from lower fees associated with investing and liquidating and access to 24/7/365 markets. The team seeks to cut out the rent-seekers and middlemen associated with legacy financial systems and make investing a more level playing field for those spending their funds.

Securitize

Securitize wants investors to understand how tedious and costly traditional liquidation processes can be. The team seeks to make digital securities more accessible to investors in order to upgrade those processes and create a better standard for investors. Their platform is robust and feature-rich; it’s backed by multiple successful issuances of digital securities on the blockchain.

Desico

Desico seeks to empower investors and allow entrepreneurs the chance to get a head start on their business ventures. They tout security tokens as an excellent way to get friends, family, and even customers to invest in your company. Desico stands behind the power of advocacy within business spaces and wants businesses and investors alike to feel like they’re in charge of the outcomes of their own decisions.

When all is said and done, it’ll be difficult for any group to solve every problem associated with either traditional markets or the realm of cryptocurrency and tokenized securities; but working to integrate these tokens into the modern world of investment can help ease some of the growing pains associated with shifts in the ways that we use and understand money.

Implementing tokenized securities will help offer investors a greater degree of freedom and liquidity when it comes to their funds. What’s often seen as a confusing and exclusive world may be opened to entirely new audiences; and more money flowing through markets means that everybody benefits.

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