Thoughts about Security Tokens

in security •  3 months ago

With all the fraud, loss, boom and bust that has occured over the last years, security tokens are what many look for to bring some real growth to the ecology now that the ICOs are apparently dead.

ICOs cannot be trusted so we are going back to what we always used to gain trust in the past and that is a stamp of approval from the authorities.

Security tokens make it so that a regulated asset can be traded as a cryptocurrency.

In my opinion there is nothing wrong with having a security flow over some blockchain. It may make the transaction and transfer of such assets more secure and efficient.

However I am not sure this is what will create a lot of value and bring lots of business to the space.

Like a Catalog on the Internet

A security token to me is like putting a catalog on the internet. Nothing wrong with it, but does not change the business model and also does not really solve a problem.

A security by definition falls under a security law of a country. As such it must comply with regulations, which is how the trust is ensured and how we avoid fraud. Well we don't avoid it but things can be done when it happened.

Already we can trade securities on regulated markets and making them tokens on a blockchain does not really change much. Because in order to trade them the exchange also has to be compliant etc.

So what really changes? Nothing really when it comes to the cost and effort to create this trust.

Manuel Trust

The thing is securities are a manual way to gain trust. And all the processes in place take time and are expensive. There are rules in place that need to be followed and thus require controlled processes. Controlled means the ability of humans to overlook and intervene. Thus manual.

The anarchistic way of how blockchains work, without permission other than possession is not something that works for securities because control of who possesses the asset is integral for the regulated way to work. As is the ability to take the asset away, which a blockchain only supports via 2nd layer.

As a result these manual trust layers would have to be built on top of a blockchain. That is not impossible to do. The USDC coin from coinbase is a great example. Hower if you do this than the value and efficiency a blockchain provides is not that useful anymore. It is like a road without speed limit but big speed bumps.

This is why I do not think security tokens will create a huge inflow of capital. Just like shops that put their catalogs on the internet did not have huge business increase because if the internet.

It was business that found new business models the new technology supports and that is what is needed for the blockchains to flourish.

New Business Models and Time

It took a long time for strong internet companies to emerge. Amazon, Google, Facebook, Twitter, Airbnb, Uber etc are all really recent companies even that were not around in the 90is when the internet emerged. They did not just pop up 3-5 years later. Also none of them have a business model that is possible without the internet.

It takes time for leaders to emerge and build new ways to create value that were not possible before. I am sure there are many leaders building new business as we speak but it may take a while for them to a appear.

I will cheer on every successful security token on the blockchain, but i may prefer to invest into traditional securities via my traditional bank interface.

I am looking for crypto assets that look entirely different than a security or the traditional companies we invest in and look to invest into securities all the same.

Just like I still read books and use the internet to learn at the same time. Maybe an ebook is a better version of a book. But it is still a book.

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Interesting perspective as I believe that blockchain technology could improve the traditional markets by making them more efficient given the lack of a third party needing to be present to confirm transactions. Today, we need to wait three business days for transactions to settle because of the counterparty risk of fulfilling delivery of the assets. This could be eliminated if these securities were tokenized which make for improved transparency and operational efficiencies. It could also lead to easier access to markets for those that today cannot access do to different types of social constraints. While I do not think we need a security token for everything (as we saw for ICOs), I do believe that the offering of securities on a blockchain ecosystem could be beneficial.

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And I agree with you. It will make things slightly more efficient.

But that all can be done with current technology as well and one cannot remove 3rd party dependency, which limits the efficiency increase:

Regulation requires that asset can be seized., how else can it be enforced. Thus one needs to put a 3rd party in charge of having control over all the assets. This is a layer that needs to be above the core blockchain since here only private keys matter.

Example: Coinbase USDC, which is a stable coin that can be redeemed via coinbase. However coinbase can freeze any asset, meaning not allow an account transact in USDC.

This makes it so that it is now iffy for someone to accept USDC that is not from a whitelisted account. For instance i would never accept USDC from a rdm stranger, because they could have acquired it illegally which then would make it so that coinbase could take the funds away from me.

So USDC are useful, they allow me to trade on exchanges and move USD across the blockchain between trusted parties. But they are not like cash or bitcoin in the sense that they are trustless.

Any other security on the blockchain will work the same way.

Now for coinbase the USDC makes everything simpler, as moving cash now becomes digital and that will be easier than making normal bank transactions. So yes there is value. But it is not revolutionary and does not take advantage of the core value a blockchain provides.

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hi @newageinv, @knircky

Would you guys like to share what's your view on tokenization of property market? This seem to be also a big thing that may bring another huge wave of investors interest.

Yours
Piotr

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It can definitely bring more people to the space but also adds complexity. While the property itself can be tokenized, the accounting and financial reporting for the asset will continue to be on the regular ledgers that are not always transparent to investors unless (again) regulated. Thus, until the ecosystem completes itself with reporting, the only advantage of the issuance on a blockchain is the trading aspect of it...

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Thank you for your comment @newageinv

Fully agree with everything you've said. Another thing I have to add is that companies and Airbnb and Uber are still facing all sorts of regulation threats and multiple ongoing lawsuits. If they waited to get the legal stuff all cler across the globe, non of the founders would have been billionaires and we wouldn't be getting all these world changing services.

It's good to do the basic stuff to stay way from legal crackdowns. But there is technology that can make governments helpless when it comes to enforcing things. The only problem is lack of adoption. For an example Komodo has Decentralized ICOs which cannot be shut down without shutting down Komodo network which would require taking down all of the nodes or attacking BTC blockchain (Komodo recycles mining power of BTC)

No government has been able to effectively combat torrents. Nobody really makes money with torrents. Crypto is the same stuff but with real money and far more development involved. The biggest problem is the lack of adoption.

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hi @vimukthi

Another thing I have to add is that companies and Airbnb and Uber are still facing all sorts of regulation threats and multiple ongoing lawsuits

Oh, I didn't know that. Seriously are all those giant businesses having issues with breaking regulations?

The biggest problem is the lack of adoption.

You nailed it.

Yours, Piotr

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The lawsuits are mostly from worker unions and cities. Here are few of many:






That's just a few.

ich gebe zu...ich hab den text nicht gelesen..... aber das kleine Ferkel fand ich sau cool.....das erheitert mir den Abend....

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war wahrscheinlich doch zu lang oder?

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neee mein eng. zu bescheiden....

Hello appreciated @knircky, really your thoughts caught my attention.

Blockchain is a relatively new concept. We are continuously discovering more fields of applicability. There are brilliant minds who work daily to achieve it.

The Blockchain ecosystem itself is constantly expanding. The most important thing is the ability to be adequate to the requirements that are presented to us.

I agree with you when you say that the ICOs are dying. In response to this reality, the STOs are booming.

Personally, I consider it a positive alternative to support any launch of a new token. Or tokenize a real asset. I think that in large part to achieve the desired success we would also have to consider the asset that we will use as support.

All best, Piotr.

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