With the hope of a new mechanism for entrepreneurs, financial professionals, and investors to interact with each other – to raise capital and reap profits – in a truly decentralised and globalised fashion; the security token idea made a lot of noise.
Effectively, a security token can be understood as a tokenised ownership stake of a fractionalised (or securitised) asset.
These assets could be anything from a slice of fractional ownership in a company, to a piece of a real estate asset, or a stake in an investment fund, and even a securitised classic car (exotic assets)!
The benefits this would afford are obvious – tokenisation offers unrivalled 24/7 asset liquidity and the concept taps into the philosophical allure of a more democratised ownership structure of a wider array of asset classes – free of profit taking centralised intermediaries.
Needless to say investors were excited, but then everything went silent.
2019 came and ICOs took centre stage. By 2020 all eyes were on DeFi, and 2021 seems to have resolutely become the year of NFTs.
So what happened to the next big thing in crypto and why are people talking about it again?
Security tokens unlock regulatory approval
Many of the initially promising security token projects launched in 2018 swiftly hit a concrete regulatory barrier.
The bold idea was unintelligible for financial regulators that had only just begun to engage with the concept of Bitcoin and cryptocurrencies.
To add fuel to the fire, the creative solution of using established crowdfunding frameworks as a legal stepping stone failed to materialise into a viable regulatory pathway.
Coupled with the onset of the bitter winter at the end of the now legendary 2017 bull run, the climate of the industry pushed the closure of all but the most resilient and persistent of projects.
Those that remained fell silent, but not inactive. What ensued will be remembered as a regulatory hibernation.
Security token projects worldwide began a concerted effort to engage, educate, and ultimately initiate collaboration with financial regulatory agencies in an effort to build a strong legislative foundation for the space.
And this work is now paying off, with a plethora of security tokens and issuance platforms now launching and going public in a fully regulated capacity in both Asia and the United States.
Security tokens look poised to re-emerge as a big topic in 2022. Watch this space.
Disclaimer: The views and opinions expressed by the author should not be considered as financial advice. We do not give advice on financial products.