Public securities experience high levels of trading
Public markets already have well established trading venues where digital platforms offer a wealth of opportunities for investors. Companies can file for an IPO and, albeit a lengthy and costly process, gain access to an electronic market that enables easy asset and price discovery for investors. Due to this, public markets experience high levels of trading activity. More and more, these markets are made accessible to smaller investors with new robot advisors and FinTechs offering innovative investment services, such as the well known Robinhood. However, only a few securities are made accessible: the biggest ones.
What about the millions of other private market securities?
Private market securities are very hard to access because they lack infrastructure. They operate in an industry that is extremely fragmented and still heavily reliant on paper-based processes. Old technology such as fax machines are still being used. As a consequence, the industry has poor asset and price discovery and barely any secondary trading activity. Investors miss out as private markets usually provide higher returns.
Blockchain technology has already opened a new and more efficient way to issue, manage and transfer digital assets. Utility tokens, cryptocurrencies and stablecoins are already accessible and traded by millions of users on centralized marketplaces such as Binance or Coinbase and on decentralized ones like Uniswap or IDEX. The ICO bubble of 2017 and the rise of cryptocurrencies such as Bitcoin have pushed the relevance of tokens issued on decentralized networks. More and more, money and assets are beginning to be tokenized.
Security tokens as the solution
The same technologies and protocols can be used with compliant securities: Compliance rules that govern private markets can now be programmed into security tokens. As investors need websites and mobile applications to use the blockchain easily, the arrival of high quality and compliant assets on a global blockchain infrastructure is helping many service providers and digital marketplaces emerge and scale. These are taking the form of traditional financial institutions or FinTechs that utilise and deliver the digital and compliant technological solutions for their audiences. These marketplaces are materializing to enforce the trust between issuers of tokens and investors by leveraging blockchain solutions.
At Tokeny Solutions, we see Digital Asset Marketplaces (DAMs) as the solution to this problem. Cryptocurrency exchanges were the first type of Digital Asset Marketplaces (DAMs) to emerge. A few of them such as Binance and Coinbase now mostly concentrate on the development of their audiences, having already successfully delivered easy-to-use and optimized web platforms for buyers and sellers of crypto-tokens. However, no one can claim to be the marketplace for security tokens. As an investor, if I want to invest in digital securities in order to lower custody fees and improve the liquidity of my portfolio, where should I go? Soon, DAMs will be the destination for these investors.
We’re looking forward to explaining more in the next article. If you can’t wait, this is an excerpt taken from the ebook we published with CoinTelegraph, download below: