The introduction of STOs looks set to open up cryptocurrencies to new horizons. As the hype for ICOs (Initial Coin Offering) wanes, attention is now turning to the Security Token industry. The Security Token industry is currently in its infancy. Many startups are trying to revolutionize the traditional financial ecosystem by entering this new business sector.
The transition from traditional assets to tokenized assets involves a set of requirements from both a technological and regulatory perspective, making token creation more complicated.
This article aims to give you clear tools to understand, more specifically, the opportunities that are available to you and a straightforward approach to investing in STOs.
What are the benefits of security tokens?
Mainly, the Security Tokens have 8 major benefits:
- Unlike conventional markets, which are open for set periods of time, the implementation of Security Tokens opens up the possibility of a market that operates 24/7.
- Possibility of obtaining portions of certain assets such as real estate and art paintings. We are talking about the real tokenization of the economy.
- Transactions can be carried out almost instantaneously.
- We will be able to witness an increase in the liquidity of existing assets. In real estate, for example, liquidity is the ability of a property to be sold easily. With the Security Token, it will be possible to sell parts of one’s real estate, for example, which will mathematically improve its liquidity.
- Until now, for a buyer to meet a seller, he had to go through an intermediary (notary, bank, broker, etc.), slowing down the validation process and increasing the cost of transactions. With the Security Token, the use of smart contracts allows much faster and cheaper exchanges.
- Automated compliance. Security tokens could be traded anywhere, including decentralized exchanges. This will incorporate markets cloud and unify the liquidity.
- Reduction of direct costs. Capital increases via ICOs are very expensive for companies and cost millions of dollars. STOs are much more affordable and can be implemented for much less.
- Asset interoperability. STOs imply interoperability between different financial assets – stocks, bonds, shares, etc. STOs allow assets that differ in kind to be claimed on a single exchange site.
Many believe that the implementation of Security Tokens could eliminate once and for all intermediaries such as notaries, bankers, etc. For others, this will not be the case, and Security Tokens should provide better tools to help companies, brokers, and investment banks raise funds more efficiently. Thus, Security Tokens would not eliminate intermediaries but rather could improve their operations.
The STO cycle
At the moment, we are still in the infancy of STO and Security Tokens. As with all new technologies, it will probably take a few years before the understanding and use of Security Tokens can be democratized. Indeed, time will be necessary for the ecosystem to stabilize and respond favorably to the desired technical and regulatory conditions.
What investment criteria should you use to invest in security tokens?
Investing your money, you have to take certain steps and check many parameters. It’s exactly the same principle with the Security Token. The following criteria can be used to determine if a project can be interesting for your investments:
In any project, the team is the sinews of war. An extraordinary idea with a mediocre team will not result in anything. On the other hand, a typical idea can easily evolve into something extraordinary with a qualified and experienced team. So focus on the background of the team members. Focus on people who have already worked in project management, the financial sector, or cryptocurrencies. The team should also be balanced in terms of its skills (marketing, developers, communication, etc.)
As we mentioned earlier in this article, in order to be called a Security Token, it is mandatory to comply with the regulations of a particular country. Choose countries or continents that have a greater influence on the market, such as the United States or Europe, for example. It is fundamental that you know where the projects have received their licenses:
ATS (Alternative Trading System License)
RIA (Registered Investment Advisor License)
RAE (Clearing and Transaction Execution License)
As with all projects, the goal is to select the candidates that have the best chance of differentiating themselves in the market. When you decide to invest, ask yourself the following question: what is the advantage of this project compared to another project in the same market?
The value of the project
Another important thing is to beware of euphoria and market evolution. A project without a license and with a small team will not be very interesting. This would mean financing a project simply on an idea, which is particularly dangerous.
As with all your security tokens investments, you need to pay close attention to the technology behind the Security Token. Investing without a thorough understanding of the technology could lead to poor decisions.
The go-to-market process
This criterion is somewhat related to the environment of the field you are studying. Investing in a project with too many regulatory, political and economic restrictions would not necessarily be the best thing to do. Ideally, you should do this task when all the indicators are green (public receptive to new technologies, favorable political and economic context, etc.)
For many, the tokenization of our economy is underway. The excitement surrounding blockchain technology is undoubtedly contributing to the development and growing success of STOs.
This innovative fundraising system will allow any startup and company to quickly increase its capital by directly putting shares or company units up for sale via the creation of a token. Thanks to STO, almost anyone can invest in a share of real estate, art, stocks, bonds, etc. There won’t be as many barriers to entry anymore, and that’s a revolution.
Still, security tokens have shown their value in a wide range of contexts, and without a doubt, this exciting new technology will survive!