What is a security token?
The different kinds of security tokens
In the family of security tokens, there are different kinds. As described by the Bitcoin Market Journal article they are:
● Security tokens which represent a stake in the wealth created by a third party
● Equity tokens which function as a traditional stock asset
● Debt tokens which represent outstanding debts and liabilities
Monart tokens STO are from the first kind, security tokens based on revenues of the art collection plus revenues from the art marketplace transactions.
These security tokens serve to create a decentralized financial market with securities (financial securities) that are tokenized and recorded on a blockchain.
Learn more about Monart tokens here.
But why turn stocks or other bonds into tokens?
There are several advantages. First of all, “tokenisation” reduces commission costs thanks to reduced technical costs. The use of smart contracts (autonomous programs that automatically execute actions previously validated by stakeholders) reduces the cost of asset management (distribution process, collection …) and with fewer intermediaries, transactions are executed more quickly. Other benefits include: access to a broader investor base and free exposure to the market. “With security tokens, asset owners will market with anyone connected to the Internet, provided they comply with the regulations,” summarizes the investor Anthony Popliano in a Medium post.
With security tokens, asset owners will market with anyone who is connected to the Internet
“Existing security tokens” have a lot of potential to make a big difference. The global capitalization of equity markets alone equals $ 79 trillion, according to the World Bank. In addition, the world of crypto and the financial world are beginning to meet. “The crypto bubble in December-January rocked a lot of things, and traditional players, especially financiers, have come to understand that crypto is a serious topic, and many have said, ‘we will not let that happen to others.” Says Clément Jeanneau, co-founder of the specialist firm Blockchain Partner and ICO Mentor, a company specializing in the support of ICO projects. Some investment funds and family offices have started investing in crypto but without causing a tidal wave. “The security tokens are a new possibility for the traditional actors to be interested in crypto-currencies”, considers Clement Jeanneau.
What is an STO*?
STO, which stands for Security Token Offering, refers to a movement taking place at the Initial Coin Offering (ICO) stage. PolyMath introduced the concept, which features a new business model that mitigates risks for investors. With an ICO, investors can purchase tokens during an offering and these tokens can be traded, sold, or held. Further, the security tokens are essentially financial securities and therefore, they are backed by tangible assets, profits, or company revenue such as a company’s profits or shares.
STOs also require licensing approved by the SEC (Securities and Exchange Commission) in the US or by other countries regulatory bodies. Security coins have the features and protections of traditional assets, such as a share of company stock, while also leveraging the benefits of being a digital asset. And virtually any kind of physical asset — real estate, equity, revenues, etc. — can be “tokenized,” or used to back a security coin.
Security tokens accelerate the democratization of venture capital
For decades, the world of private equity was reserved exclusively for venture capital firms and accredited investors — individuals with a net worth of at least a million dollars or with an annual salary of at least $100,000. When Title III of the JOBS Act went into effect in May 2016, suddenly anyone could invest in private companies. This was a major win for everyday investors, and led to the opening of several equity crowdfunding portals, showcasing many compelling opportunities in private equity.
Then 2017 happened. The advent of cryptocurrencies, blockchain technology, and smart contracts opened up even more efficient ways for entrepreneurs to raise capital without the use of a middleman, as well as the promise of a more equitable and democratized private equity landscape. When messenger app Telegram’s ICO was accessible to the public and not just accredited investors, they raised $850 million, marking one of the largest fundraising events in the history of tech.
The STO* is the safe, secure, and sensible answer to the ICO.
The Security Token Offering is a smart way to get the blockchain community to follow government security regulations. Who knows? STOs may start a beautiful relationship between the regulators and the cryptocurrency community.
A recent article on Forbes boldly stated, 2017 was the year of the utility token, 2018 was the year of realizing the mistake of the utility token, and 2019 will be the year of tokenized securities. Only time will tell if this statement will be proven true.
*The monart Token Offering is using security token infrastructure even though it is named a VFA -Virtual Financial Asset- Offering under Malta Law.