A brief intro to tokenisation of alternative investments
While financial services have largely been trapped in the Jurassic period, technology brings the future onto the horizon driven by thousands of futurists and tech evangelists. They already live in a free, decentralised individual-based cyber world and each day open small doors to bring us in. In the next few years, financial services will rapidly transform as tech rewrite the rules. What should we look for in the next period? Better terms? Improved customer experience? I think what we really need to keep our eye on is the digitalised securities arena. It becomes an available investable asset class for the very first time and brings with it the promise of enormous potential. Let’s have a look at the trends!
Everyone has heard about tokens. Tokenization is becoming particularly popular amongst more traditional issuers and investors, allured by the benefits of blockchain technology, and a new generation of tokens is upon us. If last year was the year of utility tokens, also known as ICO, this year will be remembered for the birth of an entirely new eco-system of platforms, exchanges, and funds, all looking to capitalize on the trillion-dollar opportunity that is tokenized securities.
New Term to Know: STO — a security token offering. Similar to ICO for utility token offerings.
Security tokens, tokenized securities or investment tokens, are financial securities. Tokens mostly represent a right to an underlying asset such as a pool of real estate, cash flow, or holdings in another fund. These tokens can provide an array of financial rights to an investor such as equity, dividends, profit share rights, etc. These rights are written into a smart contract and the tokens are traded on a blockchain-powered exchange.
Advantages of tokenization include fractionalization of larger assets, increased liquidity, lower issuance fees, and greater market efficiency. However, the greatest benefit that security tokens provide an issuer is access to a global pool of capital. As these tokens can be sold and traded internationally (when compliant with regulations), they become more fairly priced and, therefore, attractive to investors. This offering is appealing to both institutional investors for it’s more recognizable structure, and to crypto investors for its technological innovation.
Alternative investments (crowdfunding, P2P lending, ICOs etc) has emerged as a multibillion-dollar global industry. The global alternative аssеts expect to grow from US$10 trillion in assets today to $18.1 trillion by 2020.
According to our research, the number of alternative finance platforms grew from 4 to 94 from 2008-2014 (2,250% growth!) and at the time of writing the number has settled at 102 platforms. During this period of rapid growth we started to see the explosion in the number of different innovations and business models as platforms innovated and looked to carve out specialist niches or unique selling propositions in the new asset class. The “excitement” phase is probably over and we are now entering the “execution” phase as the industry matures and starts to enter the mainstream. So it’s really time to go with it!
One of the most promising pioneers is HighCastle, a blockchain-based marketplace, where users will be able to make one-click sale and exchange of any security ever placed on any investment platform. HighCastle makes the investments and resale of securities available to anyone, anywhere. It enables investors to make investments into private companies, hedge funds, property and a variety of other investment vehicles. It sources these opportunities from investment banks, crowdfunding platforms and other trusted channels. HighCastle is offering a wide range of investment products to professional investors globally and serve companies who are seeking equity and debt financing. So now you can give investors the freedom to make their money grow to eliminate the geographical boundaries which have been traditionally difficult to navigate, meaning exciting opportunities with asset managers on the other side of the world, which once were out of reach, are now accessible.
by Dmytro Chupryna