2019 Forecast: Tokenized Securities Market Development
Kepler Finance has put together an authoritative forecast of tokenized securities market development for 2019. Security Token Offering (STO) is rapidly growing as a more trusted and convenient way of fundraising. We’ve asked digital securities market pioneers to give their strategic views and insights on the future of the market.
Tokenized Securities Market Forecasts:
In 2017, ICOs were the popular fundraising platform. Then came 2018 and ICOs fell under scrutiny by the SEC and other regulatory groups. Along came the introduction of STOs. While regulations are still being evaluated and implemented, STOs appear to be the best platform for raising money in 2019. [...]
Tokenized securities digitally represent ownership in any asset and can provide investors with various rights to that company. VCs and traditional investors can relate better to this type of investment structure.
We anticipate that tokenized securities will gain traction as rules and regulations become clearly defined. Regulators seem to have adopted an open-minded approach to cryptocurrencies that does not inhibit innovation. Although the SEC will continue with their investigations and enforcement actions, companies that issue tokenized securities in a compliant manner will not suffer but thrive and grow.
It looks like 2019 will be an crucial year for tokenized securities - there are many issuers doing security token offerings and many existing businesses tokenizing their shares. While the supply is growing, there are some obstacles for the demand (large investors) to come in. Market infrastructure is not yet fully built - there is a need for regulated clearing houses, custodians, investment banks, brokers and exchanges to create a reliable and efficient new capital market infrastructure.
Regulatory uncertainty definitely doesn't help, so that would be one of the most important parts that should change so that companies can create the necessary infrastructure.
Demand from token issuers is already high and will only increase in 2019. Current investor appetite is low across the ecosystem, though at Swarm we have seen promising participation in the latest token using our platform - The Art Token.
The market will evolve to meet issuers and investors where they are, and the result will be a significant increase in money flowing through the market. I believe we will see investor interfaces vastly improved, to where the ‘crypto’ elements are doing their job beneath the surface while investors use entry points, currencies, and custodian solutions they trust. A common open ecosystem will stand up to enable everyone in the space to build access points, discover, and compliantly transact. 2019 will be a building year, of both infrastructure and significant cash flows, setting the stage for what’s to come.
I expect to see tokenization of several notable real world assets, such as iconic buildings or well-known artworks. Additionally, I would expect growth in the native tokenized securities market, for example tokenization of staking revenue.
Security tokens shift the fundraising mechanism into larger amounts from smaller number of investors. While the institutional model is way broken, private investors see the move of institutional money as positive which will drive prices and activity. There are obvious movements to regulated market with bigger players. That's why I'd wait for M&A from established fintech companies. From other hand there is a space for a new STO frameworks - noone has a silver bullet yet, we are crafting it on-air.
Tokenization of Securities and Tokenized Securities will continue to grow at a steady rate. It will accelerate when the following conditions are met: Major branded stock exchanges start listing tokens (e.g. Nasdaq, NYSE, LSE, Deutsche Borse, Hong Kong, Singapore, etc.); Custody is solved; Major Wall Street firms enter the fray as underwriters, and distributors and their retail customer holdings are accessible from their securities accounts.
In the meantime, we will see many smaller entrepreneurial entrants in investment banking (e.g. Weild & Co.) and ATSs (e.g. Templum, INX) that embrace regulation (e.g., SEC and FINRA).
These entities may ultimately be acquired by larger companies who are risk-averse,established and later entrants. We are leaving the anarchist and libertarian phase of these markets and seeing this technology for what it is - evolutionary, not revolutionary, promising significant cost savings and the ability to innovate securities (token) structures.
Securities will be issued through currently available legal frameworks, no way of stopping this, but unfortunately, these attempts will mainly fail due to restrictive laws that do not promote global liquidity. It's the early 1900s and we are attaching horses to cars, so they look like the current carriages we are used to traveling on.
The technology and regulatory landscape around tokenized securities is moving forward at a rapid pace. We believe that major securities issuers will release tokenized securities offerings in 2019 and followed soon behind with good viable secondary market trading capabilities. We believe this will be an emerging and continually growing/improving solution over the next decade.
I think tokenization will be a major buzzword for 2019 and many years after. I believe virtually all the assets over time will be represented in crypto. Investable funds have evolved from Closed-End Funds to Mutual Funds, to ETFs, along the way it became easier for investors to participate, easier to create these products, transaction fees came down, products became more transparent. Fungible is creating Crypto Traded Funds (CTFs) CTFs will be next generation ETFs and will attract more investors to the new crypto financial market.
2019 will be a time when many blockchain projects should execute their business model with meaningfully operating applications. Based on these solid businesses, security tokens will emerge into the capital markets. At the same time, utility tokens will also start locating their own place with the right applications.
We will see more broker-dealers, more exchanges, more investment advisors, more lawyers and more crowdfunding portals embracing tokenization of securities. The market will get more professional, and far larger and more dynamic in 2019.
The key development of 2019 is the deployment of regulated exchanges and trading platforms all over the world. Once this important infrastructure piece is in place, the market can start to grow rapidly. I also see the first generation security tokens mature and the market choosing the de-facto leader, so that it becomes a lot easier to deploy tradable security tokens. At the end of 2019 we'll start seeing second generation protocols improving security tokens even further.
We foresee more companies and investors entering the space in 2019 in a big way. There will be more security token trading venues, along with service providers like legal firms that specialize in security token offerings, custodians to safely hold investor’s security tokens, and advisors helping to raise capital for STOs. Based on the demand we see, there will be many companies raising large amounts of capital via STOs. Security tokens represent such an improvement over the legacy financial tech stack that it is only a matter of time before there are trillions of dollars worth of security tokens.
Development in 2019: I see healthy infrastructure and issuance development. On infrastructure, continued institutional investment and talent involvement in tokenization, issuance, exchange, and custody will drive technology improvement. On issuance, high issuer interest and increasing broker-dealer involvement will combine to produce interesting deals.
Read the full Digital Securities Market Research.