Security Token Offerings the ways to avoid financial crisis for 2019 and beyond

The world economy is still struggling to recover from the 2008 Financial Crisis. Years after the massive economic collapse of countries wealth and the loss of $ trillions, we are still balancing the world economy on this same house of cards.

The world financial system is set for another downturn, many experts feel this will be even more catastrophic than in 2008.

The markets are at an all-time high and we have seen this before in the 1970s and 2008  before the massive crash that came. The time for a better, more secure investment system is already here, but, sadly mainly disregarded due to negative publicity.

The causes for the 2008 financial meltdown are still debated among experts but most agree that the deregulation of residential mortgage-backed securities (RMBS) portfolios mixed with overreaching government policies that drove lenders to issue subprime mortgages.

Distributed ledger technology offers a transparency and liquidity solution that through security tokens can achieve a better investment alternative.

Security Tokens and Security Token Offerings

Security tokens serve as a digital representation of any other tradable financial asset, including equity shares of a company, interests in funds, contracts entitled to a specific slice of future revenue streams, ownership of intellectual property, fractional ownership of real estate and other physical assets, and derivatives themselves. Security tokens can be easily regulated and managed. Security tokens deliver an easier way to form capital and set the stage for a new reformed financial service infrastructure.

Private Placement through a security token offering (STO) traded legally on exchanges, which comply with existing regulations will become a better investment alternative over the coming years.

Security Token Offerings (STO), should not be confused with the initial coin offering (ICO) craze that was so popular in 2016-2018. Over 95% of the ICOs launched have either failed or become embroiled in legal issues. While security token offerings are a form of initial coin offerings there are many differences that should appeal to investors.

SECURITY TOKEN OFFERINGS CAN SAVE A FUTURE FINANCIAL MELTDOWN

Recent downturns and corrections in the stock market are heightening fears of an impending financial meltdown. For some, this looming financial crisis will see the biggest single stock market crash in history along with the huge downturn in global economy.

To address this the adoption of security tokens should be the talking point on every economists and financial networks radar, yet, sadly, they are being ignored by the media and financial institutions.

Many see cryptocurrency as just Bitcoin or have recently heard about Facebooks Libra coin and are not too impressed with the speculative qualities associated with many of the cryptocurrencies, that were promoted.

In 2018 the cryptocurrencies market plummeted from $800 billion in January to $121 billion in December, giving rise to cynicism, skepticism and mass exits from the cryptocurrency market as a whole. Furthermore, the mass ICO market that yielded the simple agreement for future tokens (SAFT) confused many as these were not security tokens but utility tokens and many were created only for pump and dumps on exchanges.

Security tokens are in fact offering an alternative and more importantly can help provide a base level for a reformed financial service infrastructure that can address the flaws and weaknesses that led to the financial crisis. Security tokens offer the benefits of liquidity and transparency while resolving the issues experienced through flawed ICOs by embracing compliance, protecting privacy and automating regulatory reporting.

SECURITY TOKENS PROVIDE THESE KEY FINANCIAL BENEFITS:

  • Portfolio transparency:Security tokens offerings give investors direct, real time software driven access to portfolios and underlying financial assets. Therefore, investors can make their own assessments regarding portfolio performance, letting the market play out naturally as conditions change. Furthermore, these securities exist on the blockchain ensuring a transparent, immutable record of transactions, preventing users from “cooking the books”. Token holders are given the ability to manage their portfolios via direct access to transaction records that cannot be altered. Transparent record-keeping of transactions, investments, portfolio performance and origin of assets at every step along the way. Demonstrated clarity around how more complex instruments have been pooled, broken up into tranches, rated – and by whom and when -directly for both investor and the regulator, who have the ability to track the lifecycle of the asset, security or financial instrument.
  • Decentralized ratings: A direct result of transparency of security tokens means many entities are emerging with competing technologies to rate the value and viability of the offerings in the security token industry. This trend in decentralized rating combats the massive trust issues created from easily manipulated ratings in traditional financial sector. This “decentralized analysis” also provides the basis for innovative new models to rate offerings in real time and employ advanced techniques, such as machine learning.
  • Efficient, objective pricing: As institutional adoption grows and STO market comes out of its infancy, more influential and available security token offerings backed by key players will enter the market. STO platforms will offer an ideal convenient model for access, trading and monetization. Market makers and other tools offered by these platforms will improve buying and selling opportunities, even with minimal market participants. Furthermore, this will provide efficient, market-based pricing for almost all tokenized assets.
  • Elimination of “too big to fail” offerings: Security token platforms offer a streamlined compliance models and access to secondary markets. These capabilities deliver and substantially reduce the costs of capital formation, creates lower barrier to entry for all securities offerings and encourages innovation – leading to more investment choices and opportunities for diversification.
  • Liquidity at all market levels: Security token platforms offer seamless market access and dramatically reduce the cost of compliance and reporting. Therefore, assets of any size can be brought to market and, in many cases can be made available to masses in a more scalable and inclusive way. Institutional and retail investors will have the ability to efficiently monetize their investment interests, rebalance their portfolios and access opportunities previously unavailable to the majority of investors. Broader liquidity pools brought on by interconnected global secondary markets and streamlined liquidity that allow for instant settlements and atomic swaps. STOs would be the best answer to the complying with legislation written in the 1930s, by opening liquidity in secondary market leaving out retail investors from owning assets prior to IPO and only allowing institutional and accredited investors.
  • Control: Retail, accredited investors and institutional investors gain greater control over the management of their assets through transparency, direct access to further empowerment to control the parameters of their investment portfolio. Coupled with streamlined compliance frameworks and interconnected secondary markets, delivers more effective market making that promotes cross-border liquidity at range levels.
  • Access: The cost of completing an IPO in the U.S. is prohibitive and the continuing compliance does not make economic sense for most companies in today’s financial systems. More readily available and accessible investment opportunities at both the primary issuance and secondary markets on investments and trading size, reduce costs, provide more diversified opportunities to hedge risks related to investment portfolios.
  • Compliance: Real-time regulatory reporting on cash flow, allows discrepancies and risks to be easily and upfront identified to allow measures to be taken by central banker and policy makers, to counteract stresses to the financial system through monetary policy. Security tokens can be coded autonomously comply with relevant regulations and laws.
  • New Assets: Emergence of new financial instruments vehicles such as contingent capital in token form, which are essentially IOUs that imitate bonds and generate a return until maturity will reduce lag time in needing to quickly and effectively pivot to absorb market shocks.

NASDAQ PREDICTS 2019 WILL BE THE YEAR OF THE STO

The Nasdaq predicts that 2019 and beyond will see the STO becoming the ne norm as regulators in global markets work to set the stage for adoption and stable regulatory environments.

The adoption and education on the best practices for the STO is urgently needed and should be adopted by more institutions and investors quickly, before the global economy is at its knees again.