Globacap says that it has issued the world’s first blockchain equity-security tokens under the supervision of the UK Financial Conduct Authority, as part of the regulator’s Sandbox Cohort 4.
The FinTech startup has created a public blockchain token that forms a legal shareholding under UK company and securities law. It was advised on this by legal firm Hogan Lovells.
Globacap’s technology creates a digital token that itself forms the legal shareholding in the company. The token’s in-built processes facilitate further transactions by automatically fulfilling the administrative and legal requirements of an equity ownership transfer under UK company law. Such transactions are recorded on the token’s underlying blockchain. This is different to other types of equity tokens that provide a digital receipt of equity ownership.
According to a press release issued yesterday: “The tokenization process can be applied to most asset classes, effectively providing a means of digital securitisation. Because the digital tokens are easily transferable, including on traditional exchanges, this is transformational for the private investment landscape because previously illiquid investments can now be transacted efficiently in seconds instead weeks, and with minimal overheads.”
Myles Milston, CEO of Globacap, comments: “This is a transformative milestone for the securities industry, paving the way for private companies and projects of all sizes to more efficiently access a wider pool of global capital. The Innovate team at the FCA have been pivotal in this milestone, allowing us a quicker route to launch our proof of concept while having regulatory oversight.”
Spotify’s direct listing throws spotlight on fundamental flaws in IPOs
Last month, Milston contributed an article to Coin Rivet, in which he argued that digital security offerings (DSOs) are the way forward for businesses to raise capital.
Spotify’s decision to eschew a traditional IPO earlier this year in favour of a direct listing highlights how out dated and ill-suited IPOs have become and how financially draining they are, with a requirement that ‘money is left on the table’ to keep existing investors and underwriters happy, he stated. Most importantly, they fail to provide growing companies with flexibility when it comes to fundraising.
“Alternative equity raise strategies have already been developed in the private placement markets and many independent boutiques are placing ‘structured equity’ directly to asset managers. But often these are very relationship based and difficult for average, mainstream businesses to access,” he wrote.
ICOs too are touted as a possible solution, having raised more money in the first three months of 2018 ($6.3 billion) than the whole of 2017. Yet reputational and regulatory issues continue to bedevil the sector.
Milston commented: “The real solution is the next generation of capital raising: blockchain securities. These are not ICOs, or ‘token sales’. Instead, blockchain provides a means of representing a security in digital form, which can more easily be accessed by multiple trading venues globally. This provides issuers with greater access to liquidity at a more cost-effective price, and with greater transparency. In addition, creating a security in blockchain form provides a more efficient mechanism for administering that security, and also improves the entire workflow of clearing and settling in the secondary market.”
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Disclaimer: The views and opinions expressed by the author should not be considered as financial advice. We do not give advice on financial products.