Editor's Note: This article comes fromEight-dimensional blockchainEight-dimensional blockchain
Foreword:
exist(ID: eightdecimal), author: Wei Ran, published by Odaily with authorization.Foreword:
exist
Among them, we predict that from the transfer payment led by Bitcoin 1.0 to the equity financing led by ICO 2.0, Security Token, which symbolizes debt or equity-debt hybrid financing tools, may lead the wave of 3.0 and open the door to traditional assets. It has become a powerful force that pushes the market trend into an inflection point.
Looking back on the past, because we firmly believe that the industries and capital in the real world will be mapped to the parallel digital world, we have deeply cultivated technological infrastructure, built a financial industry chain, and deployed strategic alliances. The investment map has taken shape. Focusing on the future, we insist on deep thinking and forward-looking layout, trying to paint a new picture of the Security Token industry.
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“History doesn’t repeat itself,Security Token Industry Landscape:
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1. Dangers and opportunities
but it does rhyme. History doesn't repeat itself, but it does rhyme"
--Mark Twain
In short, where there is danger, there must be opportunity. Bitcoin, the originator of digital assets, was born after the economic crisis in 2008. Ten years later, ST is also the inevitable product of the right time, place and people.
When: At the end of the cycle, profit opportunities when liquidity is scarce
2018 marks the tenth anniversary of the financial crisis, and articles reviewing the crisis emerge in endlessly. Both Zhou Jintao’s final speech and Ray Dalio’s recent new book put forward a similar point of view, that is, the macroeconomy will go through a boom-recession-depression-recovery cycle, and the formation of a cycle is a “systematic” process, not a single one. determined by factors.
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Source: Big Dedt Crisis
Whether it is from the perspective of technology, population, nature, and institutional changes, or from the perspective of debt, real estate, and inventory cycles, 2018-19 is a period when risky assets are facing downward pressure and the main logic of investment turns to the pursuit of asset liquidity. . The surge in U.S. bond yields will be transmitted to the stock, bond, foreign exchange, commodity, and real estate markets through the pricing mechanism, causing a resonant decline in global risk assets. Recently, the three major U.S. stock indexes (especially technology stocks), the Asia-Pacific stock market and the digital currency market have experienced declines or even sharp declines.
When the financial industry is deleveraging as a whole, there may be a liquidity crisis. At this time, people will have to sell assets to obtain liquidity, and asset prices will fall precipitously. This will be a good time to capture high-quality and low-priced assets.
Land: Cyberspace is a brand-new "field", and the online community has become a master of minority communities
Cyberspace is a field that is parallel to the real world and crosses borders. Technological innovation provides new channels for global capital allocation. Investors can more easily invest in emerging markets, such as Southeast Asia and other high cost-effective asset price depressions.
The Internet enables people with similar values, hobbies, and characteristics to discover each other and form a highly sticky, self-driven community culture. Cyberspace has become a gathering place for many new production collaboration organizations such as DAO (Decentralized Autonomous Organization). The platform uses big V and IP as the driving force and publicity force to influence and manipulate group expectations.
The long-tail but large-scale crowd prefers high-risk, high-return online gambling products with strong gambling and gameplay;
The "middle class" who have wealth management needs but are not covered by offline private banking services and face consumption downgrades have become the main audience of online wealth management products;
ST meets the needs of high-net-worth clients and institutional investors who need to revitalize low-liquidity assets and conduct cross-border asset allocation in a compliant manner.
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2. Physical means and chemical reactions
What exactly are we talking about when we talk about "asset tokenization"? What is the difference between it and traditional asset securitization?The core of asset tokenization or Security Token is not just "compliance", although it will undoubtedly promote the reform of the ancient regulatory mechanism. After all, the most famous regulatory law that the SEC is based on is still the "1933 Securities Act, there is a three-generation gap with reality.
In the article Security Token 2.0 Protocols: Debt Tokens, the author divides Token into four categories according to the financial model:Debt Tokens
: A token that represents debt or cash proceeds.Equity Tokens
: A token that represents fractional ownership of an underlying asset.: Combining features of stocks and debt, such as convertible bonds and convertible preferred stock.
Funds and Derivative Tokens
: ST price is based on the current price of the underlying asset pool. Derivatives can be divided into forward options, futures, and swaps, and funds can be similar to ETFs and mutual funds.
Source: Security Token 2.0 Protocols: Debt Tokens
We believe that the future ST will add the nature of Debt/Liability compared with the equity-like tokens of the ICO period.
For example, the stock-debt hybrid model in the figure below is to learn from the AB level of tiered funds and divide a total asset pool into two different types of ST shares. TokenA represents class debt and enjoys lower fixed income, and TokenB represents class equity. , strive for high returns but bear high risks.
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Source: The Token Waterfall
Blockland has put forward an interesting point of view. The integration of tokens and securities can be divided into two models and two stages:
2. Tokenization of Security
In the past, we endowed the technical language token (token) in the computer language with financial attributes through ICO, and in the future, we will endow the security (securities) in the financial language with technical attributes through ST. And Tokenization of Security is by no means something that technology geeks can achieve alone.
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Source Jingdong Financial ABS Cloud System
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Source Wikipedia: Tranche
Taking Tranche as an example, the tokenized ST of the asset pool is divided into three layers—Senior, Mezzanine, and Equity. The priority enjoys a fixed lower risk-free return; the secondary layer enjoys a fixed risk-free return plus a floating partial premium; the inferior layer enjoys the remaining income, but if there is a default on the asset side, the inferior layer will first be used for redemption .
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Source: The Token Waterfall
For example, in the dual-token model in the figure above, the redemption sequence is "A's interest—A's principal—B's principal—residual income distribution (A: 20% + B: 80%)". The principle is that the inferior layer does not guarantee the rigid redemption of the principal, and strives for high returns by taking over the risks borne by the priority layer, which meets the needs of investors with different risk preferences.
In reality, the more common credit enhancement measure is overcollateralization. For example, when banks lend to individuals, they require real estate mortgages. This is the logic. The lender and the borrower do not need to reach a precise consensus on the value of the collateral, as long as it is clear that the loan amount is (far) less than the lower limit of the collateral's valuation. Once the borrower defaults, the bank has the right to auction off its collateral to make up for its losses. For the debt market, the most economical way to provide liquidity is to avoid the necessity of price discovery and reduce high bargaining costs through "over-collateralization".
Referring to the logic of traditional finance, the pricing of debt products is determined by risk and interest:
Risk: determined by the default risk of the debtor and the valuation of the collateral.
In more detail, there are the following key elements:
transaction structure
Basic asset pool
The cash flow of the underlying asset pool is the basis for repaying ST income, and the asset pool is an asset portfolio, so it is necessary to analyze the characteristics of the asset pool (measure asset correlation through Monte Carlo simulation), and conduct cash flow stress tests (interest rate, default rate and volatility).
transaction structure
Transaction structure arrangements include cash flow repayment mechanism (guaranteed full interest, payment on schedule), credit enhancement measures (internal and external credit enhancement, internal credit enhancement such as hierarchical structure, excess mortgage, cash reserve account, etc., external credit enhancement such as institutional guarantee , liquidity support, etc.), transaction structure risk (confusion of funds, institutional change risk, etc.).
Legal compliance, accounting treatment
Cash flow collection mechanism
Guarantee the collection of cash flow of creditor's rights/income rights, ensure the rationality of account settings, and prevent the risk of capital confusion.
But the nature of money markets, which relies on measures such as overcollateralization and structuring to obscure price discovery, has its downsides. Everything works well during the period of rising asset prices, but once the asset price of the collateral continues to fall until people's mutual trust in the collateral is broken, then the entire market will collapse.
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3. New financial intermediaries
Seeing this, some people may suggest that the core idea of the blockchain is "decentralization" and "disintermediation". What about the price difference?
First, the needs of borrowers and lenders are inherently asymmetrical. What kind of assets to choose to enter the pool, how to design the transaction structure, how to confirm the over-collateralization ratio, similar to the "chemical reaction", has changed the risk structure of securities by creating a diversified and multi-level asset portfolio. However, improvements in the technical category are mostly physical measures to reduce operational risk, which does not mean that the risk characteristics of individual assets can be changed, nor can credit risk and market risk be reduced. Therefore, we need financial intermediaries to carry out risk assessment and pricing to better match assets and funds.
Second, the current digital asset market cannot even solve some of the most elementary problems. For example, how can we solve the problem of ST being lost or stolen due to an operation error by one person? How can we only invest in a high-quality asset (Asset), such as the rental income right of a prosperous shop in the city center, even though the real estate company that owns this prosperous shop has extremely low credit?
Bankruptcy isolation mechanisms such as SPV (special purpose vehicle), custodian banks, law firms, accountants and other roles have emerged to solve these problems. They enforce risk isolation to ensure that the rights and interests of both borrowers and lenders are honored. The existence of these subjects is not tasteless, and still has real value.
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4. ST product form
ST may have many product forms, we can roughly classify them as follows:
1) Derivative token:
Financial/Crypto Asset Pool—financial asset pool mortgage, Quasi-ETF (like ETF fund)
The essence of this type of product is an investment fund, similar to mutual funds or ETF funds, and the price of securities is based on the current price of the underlying asset pool. Regardless of whether the asset pool is credit assets, LP equity of venture capital funds or digital assets, risk pricing is carried out according to the traditional financial pricing model, and then converted into ST pricing.
2) Debt certificate:
Real Asset Pool Real Assets Mortgage
3) Equity certificate:
Reg A+ is called Mini IPO, which can raise funds from all investors around the world, and has no lock-up period. Its nature is similar to IPO, but compared with IPO, the disclosure and filing requirements of Reg A+ are still very low, so Become the preferred alternative to IPO.
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Source: Beco Ventures
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Source: STO Financing Handbook
In these processes, new financial intermediaries and service providers play an important role, and they naturally become investment layout opportunities that we pay attention to.
5. The whole ecology of the ST industry chain
In the current market, many institutions serving the upstream and downstream of the ST industry have emerged, such as:
Issuers
Issuance platform
Investment banks
Smart contracts to track spending and revenue
Payment platform and stable coin
Investors
Exchange
Identity Management (KYC/AML)
Governance platform
Voting Saas platform (SaaS platform to allow investors to vote)
Company process operation (Help with company charter)
Agencies
Custodian
Liquidity providers
Media (Media/PR Agencies)
Rating Agencies
Compliance (Legal & Accounting) (Compliance, Law & Accounting)
Information platform
Admin Console
The picture below is a layout picture of ST industry (click to enlarge):
We have summarized and classified the main body of the ST industry ecology, and made a table for readers:
A. Issuance Platform:
B. Hybrid Solutions
C. STO Exchanges
Special attention: SharePost (https://sharespost.com/) and GLASS system.
The Global Trading Depth and Settlement System (GLASS) comes from SharesPost, a well-known private equity trading platform. Since 2009, SharesPost has been focusing on matching thousands of buyers and sellers, and has served more than 200 technology companies to reach more than US$4 billion Equity transactions. Backed by the SharesPost US ATS license, GLASS will deepen the exchange's trading depth, drive trading volume, and settle transactions of compliant tokens in all jurisdictions. Over the past 18 years, the GLASS system has formed in-depth cooperation with well-known exchanges around the world, which will help institutions such as SharesPost, OKCoin, Huobi, Stellar, Securitize, and OKEx to expand users and assets, especially private equity investment, tokenized assets, and other large-scale The emerging securities products will become the basic system of blockchain community compliance and settlement.
D. Liquidity Layers
0x is an open source protocol for decentralized exchanges based on the Ethereum blockchain established in 2016. Users can directly contact known trading partners for free transactions, and can also pay a certain amount of ZRX to access the liquidity pool of the relay party. The core team is smart contract expert CEO Will Warren and CTO Amir Bandeali, and well-known institutions such as 8D Capital, Polychain, Pantera, and Blockchain Capital participated in the investment. Ethfinex, imToken, and OpenRelay are all relay parties based on 0x, and have provided services for famous dApps such as Augur, Aragon, and Maker. By sharing standard APIs, 0x allows relay parties to easily gather liquidity pools to form ample liquidity.
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E. Existing Tokenized Fund
F. Upcoming STO projects (upcoming STOs)
postscript:
In the book "Assembly", the left-wing authors Hart and Negri pointed out that, unlike the capital's strict control over the labor process itself in the era of industrialized mass production, today's capital is often produced by "the many" through collaboration. After coming out, use financial tools to obtain this value:
Immaterial labor & Biopolitical labor (non-material labor and biopolitical labor)
Labor produces immaterial products such as "symbols, images, information, knowledge" and creates social relations.
Means of production－knowledge and algorism
The means of production that are mainly relied on are no longer tangible, such as machines in a large factory, but more intangible, such as "knowledge or algorithms."
Sharing Economy
Value creation is based on "information exchange, social relationships and collaboration". Generate workers' social relationships and emotional connections in a highly collaborative labor process.
Finance captures social value
Assembly by Michael Hardt & Antonio Negri
The most important thing by Howard Marks
Big Debt Crisis by Ray Dalio
In the political and economic system of neoliberalism, the most important means of value capture by capital are financial instruments and financial derivatives.
Security Token 2.0 Protocols: Debt Tokens by Jesus Rodriguez
Internet technology has led to changes in the form of collaboration and social relations, and these changes are the soil for the birth of "blockchain" and "digital assets" or other new things. Name new things, compare with old things, apply a certain framework, and clarify description concepts. These are tools and processes (means), not goals and results (ends). Security Token is nothing more than the carrier and designation of a new thing. Instead of tangling concepts and boundaries, it is better to focus on trends and cores.
References:
Process and System: The True Meaning of Cycle by Zhou Jintao
STO Financing Guide
Your Official Guide To The Security Token Ecosystem by Tatiana Koffman
Polymath Whitepaper
The Token Waterfall by Todd Lippiatt, Michael Oved
RegA+: A better listing method for small companies or STO by Bittroud
