January 8, 2019
The STO era Begins!
As 2019 comes around, crypto commentators produce countless predictions, but one theme that is consistent is the fact that the majority are calling 2019 the year when security tokens truly take off.
The world’s first Bitcoin was created ten years ago this month.
Since then the cryptocurrency has been on quite a ride, surviving massive price swings, hackings, and intense scrutiny. Bitcoin’s ups and downs have helped the asset go from a misunderstood concept to a staple in modern finance. Although still considered an infant, Bitcoin is a revolutionary child that shook up the world of technology, finance and the way we conduct business. It opened up countless opportunities never before imagined a little over a decade ago.
The latest innovation in the crypto ecosystem is tokenized securities or security tokens, which have been a central topic throughout 2018, and it will bring seismic changes to the capital markets. The security token movement is set to take off in 2019 which will be increasingly used by enterprises and institutions to get on board the digital economy wagon. 2019 is predicted to be the most significant year in the digital economy industry since the inception of Bitcoin.
The Future Of Asset Ownership And Trading Is Here
We will begin to see a paradigm shift concerning asset ownership and the way it is traded. Security tokens allow traditional securities to be broken down into tokens with the backing of a real-world asset, removing traditional middleman exchanges by entering the blockchain ecosystem. The ownership to an underlying asset will be linked, by law, to a digital token on a network. Stocks, bonds, and investment contracts will be legally tied up to lines of code and provide financial rights to the owner, e.g., voting rights, profit share rights, redemption rights, equity, and dividends.
Security Tokens Will Consume Finance
Even though cryptocurrencies and utility tokens have had a bad year in 2018, the expectation among insiders is that security tokens will rise in stature in 2019, driven by a wave of interest from big business and financial institutions.
Signs that bigger financial players will step into crypto in 2019 have been increasingly forthcoming in recent months. In November 2018, it was reported that NASDAQ, the second-largest stock exchange in the world by market capitalization, would begin allowing Bitcoin futures trading in 2019. It has also been reported that NASDAQ will shortly start operating with digital assets exchanges allowing trading of traditional stocks through security tokens.
A Shortcut To Trading NASDAQ Listed Stocks Via Security Tokens
DX.Exchange reported it will launch a platform that will allow the purchasing of security tokens that represent shares in NASDAQ-listed companies. This groundbreaking initiative would, allegedly, allow for one company share to be backed by a digital security, and therefore giving it the ability to be fractionized, and sold in the secondary market. Every investor will, therefore, be entitled to the same cash dividends. They would not be purchasing ownership of shares directly, but rather, the purchasing of tokens which represent shares in a company.
Despite being a great leap into this new technology, DX initiative lacks some relevant aspects to the securities industry. Trust is one of the major points, the custody of the assets traded on their platform will be in charge of a small broker/dealer based in Cyprus, this point will be a huge challenge for them to bring confidence for their investors. Another major point is the verticalized infrastructure of their operation, this is not the way the financial market works, and potentialize the risks of the system.
Blockchain Technology Will Change Trading In The Stock Market
Blockchain can be the answer to transparency, trust and interoperability issues in today’s market systems. It can make stock exchanges much more optimal through decentralization and automation. It can help reduce huge costs leveraged on investors concerning commission while speeding up the process for fast transaction settlements.
The stock market participants such as traders, brokers, regulators, have to go through a complex process which can take days to complete transactions, due to the role of some intermediaries. Blockchain makes this process simpler because of its decentralization and automation. It can help the participants to lower the high costs while speeding the process for fast transactions.
The borderless and non-stop nature of blockchain brings tremendous advantages to both traders and enterprises. Transactions can be performed 24 hours a day, 7 days a week. Traders can buy or sell fractions of a stock, which translates to greater liquidity and access to a much larger group of investors, especially to foreign individuals that otherwise would struggle to operate in international stock markets.
The year ahead is promising to be when blockchain technology and cryptocurrencies leave their permanent mark in the global economy. With security token taking the spotlight, Wuzu is tagging along and will launch exciting projects and partnerships within the security token movement. To start the year with a bang, we will shortly announce our own solution for stock market trading through the blockchain with a layer of trust and security that is unheard of in the industry. Stay tuned!