Eight Trends in the Security Token Market in 2019
8 Security Token Market Trends to Watch Out for in 2019
By Kadeem Clarke
foreword
Original by Bawei Research Institute, please indicate the source for reprinting
foreword
As a blockchain-focused venture capital fund, 8 Decimal Capital is focused on assisting in the mass adoption of blockchain technology. We believe that this can be done by investing in the future, not only what’s popular. This is why we are consistently conducting thorough research, due diligence, and speaking to industry leaders. As of recent, our research has been primarily geared towards the security token space.
As an investment institution focusing on the blockchain field, 8D Capital is committed to promoting the large-scale application of blockchain technology. We hope to create the future through investment, rather than chasing the most popular concepts at the moment. That's why we continue to conduct in-depth research, due diligence, and conversations with industry leaders. Recently, the security token field is an important area of our focus.
Based on our research, here are 8 security token market trends to look out for in 2019:
After research, the following are the judgments on the eight major trends in the Security Token market in 2019:
Note: This is merely my opinion and I expect many readers to have differing viewpoints.
Note: This is only a personal opinion, and I look forward to exchanging dialogues with more different opinions.
1.Exchanges won't be successful in 2019
1. Exchanges won’t be the most successful sector in 2019
As the security token market gains popularity among the blockchain community, many people are focused on the exchanges as the gateway to liquidity. However, I believe that the market is too nascent for exchanges to bring any value to the tokens that are being listed on them. With that being said, I still believe that major traditional exchanges, such as the Nasdaq, will develop their own solutions to facilitate the trade of security tokens in 2019.
As the security token market is gaining traction, many are focusing on “exchanges”—gateways that promise to bring liquidity. However, I feel that the overall market is still too early, and the potential for exchanges to add value to listed tokens is still very limited. Nevertheless, I still believe that mainstream traditional exchanges, such as Nasdaq, will develop their own solutions for security token transactions in 2019.
As an investor in the space, I have spoken to dozens of projects launching an exchange for security tokens and I ask them the same question, How will you create liquidity for the tokens listed on your platform?” Oftentimes, they answer this question by mentioning the market makers they will partner with and their plans to attract users to their platform. In my opinion, this method won’t produce the results that these exchanges anticipate. Market makers can create liquidity for those exiting a position, but won’t be able to sell the tokens for a profit if there isn’t a market of buyers.
As an investor in this field, we have communicated with many projects that specifically build exchanges for security tokens. I asked them the same question, "How do you plan to provide liquidity for tokens on your platform?", usually For example, they will mention the market maker they are cooperating with (Note: A market maker is a middleman for buying and selling designated by the stock exchange. Its main business is to quote prices for buyers and sellers, and to find good price matching trading, themselves profiting from the bid-ask spread), and their strategies and plans to attract investors. However, I feel that these methods may not work. Market makers can provide liquidity for targets that already have investors, but are unlikely to sell tokens in a market where there are no buyers.
In my opinion, exchanges don’t create liquidity. Exchanges are a way of managing an already liquid market and facilitating the trading of liquid assets. Rather, broker-dealers will be essential in the security token market in 2019 as security tokens will initially be used to only digitize the fundraising process, not create liquidity.
We believe that exchanges do not create liquidity endogenously. An exchange is a platform that manages a market that already has liquidity and facilitates the trading of liquid assets. However, Broker-dealers (brokers and market makers) will become a key component of the security token market, because security tokens will first be used to digitize the financing process, not to create liquidity. (Note: Brokers and market makers, Broker brokers, which earn profits by providing brokerage services to customers to earn transaction commissions, do not own the ownership of the assets traded; and Dealer market makers, which earn The profit method is to use its own funds to buy securities, and then sell them to investors at a higher price to earn the bid-ask spread. It will participate in the entire transaction process and fully own the ownership of the property it buys and sells)
2.More security tokens will appear, but the quality of some tokens will resemble the bad(💩) coins of 2017
2. More ST will be born, but the quality will vary, some of which will be similar to the garbage coins that appeared in 2017
Many businesses, both traditional and blockchain, are becoming curious about security tokens and how it can benefit their company. In 2019, people will become more knowledgeable about the security token space. As more tokenization platforms appear globally, the Security Token Offering process will become easier and relatively cheaper. Additionally, institutional players will become comfortable with security tokens as more custodians and other infrastructure players provide solutions for security tokens. This combination will result in businesses taking action and launching their own security token, rather than just curiously exploring the idea.
Many businesses, including those from traditional industries and blockchain industries, are very curious about security tokens and want to know how to benefit their companies through this new thing. In 2019, people will have a more objective and in-depth understanding of security tokens. When more and more issuance platforms emerge around the world, the security token issuance process will become more convenient and cheaper. At the same time, institutional investors will be more willing to participate when more financial infrastructure such as custodian institutions are more complete. The combination of the two will take people beyond the stage of discussing concepts, and actually take commercial action.
Along with traditional businesses, blockchain projects without revenue are also showing interest in the security token market. Investors should beware of risky security tokens, especially those backed by projects without assets or revenue. Security tokens and regulation don’t eliminate the risks of ICO businesses, they only decrease the risk.
In addition to traditional industries, unprofitable blockchain projects have also become interested in the Security token market. Investors should have a more objective understanding of the risks of this new financial product, especially those projects that are not backed by assets and profits. Security token and supervision did not eliminate the risk of ICIO, but only reduced it.
3. Security tokens will no longer be considered "the new 1CO", a new class of security token will be created to replace 1CO
3. Security token is no longer regarded as "new ICO", but will become a new asset class to replace ICO
Security tokens are supposed to be digital assets (emphasis on the word assets). In my opinion, a business without any assets or revenue should not consider launching a security token, yet.
Security tokens are considered digital assets (emphasis on assets). In my opinion, as of now, a business with no assets or profits is not suitable for issuing Security tokens.
Using a utility token as an investment vehicle doesn’t make any sense to me, but I do believe that startups should be able to crowdfund their companies. With the pending downfall of the utility token investment market, ICO companies will have to find a new way to raise money.
I don't think it makes sense to use a utility token as an investment vehicle. But I believe startups should be able to do equity crowdfunding for companies. When the utility token market goes down, companies that were planning to do ICO need to seek a new financing path.
In 2019, I’m looking forward to seeing a new class of security tokens that will allow new blockchain businesses to access capital from global investors while also protecting investors from fraudulent and worthless projects. This would have to result from the creation of information platforms, new protocols, and new regulations. As I brainstorm this idea more, I will be able to create a more concrete vision of this new class of security token.
In 2019, I look forward to seeing a new security token financing model that allows start-up blockchain companies to raise funds from global investors while protecting investors from scams and the like. To achieve this, we need disclosure platforms, new contracts, and new regulations. When we take these factors into account, we develop a more concrete new asset class.
4. More advanced security token protocols will emerge, catalyzing the creation of liquidity in the security token market
4. More advanced security token contracts will be born to consolidate liquidity for the security token market
One major issue with the current security token market is the lack of advanced financial instruments. At the moment, I have only seen security tokens that represent equity in a business. This has been an easy way to start, but won’t be enough to lead to the mass adoption of security tokens. As the next generation of security token protocols emerges, tokens will be able to handle bonds and other derivatives.
A major problem facing the security token market recently is the lack of advanced financial tools. At the moment, most security tokens can only represent class equity. It's a good start, but not enough for mass rollout. As the next generation of security token contracts grow, we will be able to handle bonds and other derivatives.
Currently, there is a lack of debt protocols in the security token market, but I anticipate many to pop up in 2019. Debt protocols can decrease the systematic risk associated with most security tokens and provide investors with immediate cash flow. Additionally, debt holders have first priority in the case of a failing business. 8 Decimal is currently working with technology partners to release our own debt protocol in 2019 that will be used on our soon-to-be-announced tokenization platform.
Although Debt Protocols are still scarce right now, I expect a lot of Debt Protocols to emerge in 2019. Debt-type contracts can reduce risk and provide investors with direct cash flow. At the same time, creditors can also get priority repayment in bankruptcy. Eight-Dimensional Capital is working with technical partners to develop debt-type contracts. In 2019, our tokenization platform and contracts will be available soon.
5. The global economy will have an impact on the growth of the security token market
5. The global economy will have a major impact on the growth of the security token market
As a venture capitalist, timing must be considered when making any investment. For the security token market, the timing could have a negative impact on the growth of the market. Globally, capital markets are approaching a peak in the cycle. Recent volatility in the US markets and a 10-year bull market has led many to believe that a downturn will happen in the next 6 months. Considering this, there are two schools of thought. Some believe that the security token market will be inversely correlated to the traditional markets, while others believe that there will be a direct correlation.
As a venture capital institution, timing is very critical for investment. For the security token market, the moment may not be the best time for the growth of the security token market. Looking at the world, the capital market is reaching the bottom of the cycle. The recent fragility and volatility of the U.S. market, combined with the 10-year bull market, has many believing that the entire market will fall within the next six months. On this point, there are two different views. One believes that the security token market will be negatively correlated with traditional market conditions, and the other believes that they are directly and positively correlated.
I believe that there will be a direct correlation. In times of economic downturn, asset values don’t experience much growth due to the lack of capital in the market and a lack of expected short-term economic growth. The security token market doesn’t remediate either of these issues, so shouldn’t it also experience a decrease in asset values? On the other hand, investors typically flee to fixed income during an economic downturn because of the constant coupon payments. This is why I stress the importance of security tokens that represent debt. Debt tokens will be able to attract institutional investors, even during a time of economic downturn.
In my opinion, the security token market and the global capital market are positively correlated. During the economic downturn, due to the lack of funds in the market and the pessimistic expectations for short-term economic growth, the value of assets will not increase much. Security token cannot solve the above two problems of funds and expectations, so will it also face the situation of asset valuation decline? On the other hand, investors usually choose fixed-income products during economic downturns to obtain stable interest. This is why I emphasize the importance of security tokens representing claims. Debt tokens are expected to attract institutional investors, especially during economic downturns.
6. Securities regulation will begin catching up in 2019
6. In 2019, securities regulatory policies will speed up to keep up with the pace
As we’ve seen in 2018, some small countries, such as Malta, Gibraltar, and Singapore, around the world will continue creating security token friendly legislation in 2019. Due to the size of their governments, these countries are able to adapt at a quicker pace than larger countries, allowing them to act as nimbly as a startup.
As we saw in 2018, many small countries, such as Malta, Gibraltar and Singapore, will continue to be friendly to security tokens in 2019. Because of their smaller governments, these countries are able to respond more nimbly and quickly than larger ones, just as small start-ups are faster than large corporations.
Larger countries, with more decision-makers and gate-keepers, will take more time to create regulations specifically for security tokens. Unlike ICOs, regulators around the world are showing positive sentiment towards the STO market, even the SEC. I believe that global regulation will come quickly after the SEC creates regulations which are specific for digital assets.
Big countries, with more lengthy decision-making processes and more gatekeepers with vested interests, it will take a little time for these big countries to individually legislate for security tokens. Unlike ICO, most regulators in the world have a friendly attitude towards the security token market, including the US SEC. I believe that when the SEC formulates relevant regulatory guidelines for digital assets, global regulation will be updated soon.
7. Information plarforms will become more important
7. Information disclosure platform will become very important
In order for large institutional players to enter the secondary security token market, investors must be provided with reliable and trustworthy information. I believe that platforms, similar to the Bloomberg Terminal, will appear in 2019. However, these platforms won’t use traditional methods to analyze businesses.
In order for large institutional investors to enter the secondary market for security tokens, investors must provide credible information. I believe such platforms, like the Bloomberg Terminal, will appear in 2019. However, these platforms do not use traditional means to analyze business.
A combination of blockchain and other advanced technologies, such as artificial intelligence, will be used to increase the efficiency and reliability of reporting information about and rating the underlying assets. Since we started looking at the security token market, 8 Decimal has been on the search for an information platform that could service the market in this capacity.
A technical means that combines blockchain and other advanced technologies, such as artificial intelligence, will be used in this information platform to make information disclosure and evaluation of underlying assets more efficient and credible. Eight-Dimensional Capital is searching for information (disclosure) platforms and information terminals with such capabilities.
8. Higher quality talent will enter the space
8. Better talent will enter the market
Working in the blockchain industry requires you to be a jack-of-all-trades which is why the blockchain industry is full of diverse talent from a wide range of ages, industries, and regions. Even though this is what makes the industry so great, it is also something holding the industry back. The top tech talent is still working at large companies in the traditional tech space. The top finance talent is still working at traditional banks and financial institutions. That leaves the security token space with a smaller pool of top talent.
Working in the blockchain space requires you to be an all-rounder, which is why the field has diverse talents of different ages, industries and regions. While this is what makes the blockchain industry great, it is also a problem that holds the industry back. Top tech talent still works in big organizations. Top financial talent is still employed in traditional banks and financial institutions. This makes talents in the security token field extremely precious.
I believe the current talent in the security token space is highly skilled and intelligent, but the experts of the tech and finance industries could help shape a stronger industry. As the security token market gains more traction in 2019, experts from traditional industries will enter the security token industry for new opportunities.
in conclusion
Conclusion
in conclusion
All in all, 8 Decimal is excited to see how the security token market develops in 2019. In addition to investing in security token projects, we intend to participate in the market too. 8 Decimal, along with our technology partners, is developing an end-to-end platform to facilitate the tokenization of real assets (including equity, debt, and real estate). While this platform is being developed, we are advising a multitude of traditional and blockchain businesses that want to go through the process of launching their own security token. If you or your business has questions about launching a security token, reach out to me via Wechat，LinkedIn or email us at: kadeem@8dcapital.com or contact@8dcapital.com
All in all, 8D Capital expects to see the vigorous development of the security token market in 2019. In addition to investing in this field, we also intend to devote ourselves to building this nascent market. Eight-Dimensional Capital is working with our technical partners to develop a platform that can tokenize assets (including equity, debt and real estate). While the platform is still under development, we are providing consulting and token design services to companies in a range of traditional industries. If you are interested in this, welcome to contact us via WeChat.
