Security Token Webinar, Institutional Adoption – Key Take Aways

On the 14th May 2019, Security Token Network hosted a webinar with investment bankers and high-level consultants to discuss the state of the security token industry and were joined by:

  • Bernardo Quintão, CEO, Liquia Digital Assets
  • André Portilho, Partner, BTG Pactual Brazil
  • Dusica Lukac, Partner, DL Capital Partners
  • William Rawley, General Council, Gibraltar Stock Exchange GSX
  • Henry Arslanian, Head Global Crypto Operations, PwC

Key Takeaways

Security Tokens are Gaining Ground

Security tokens are made possible by blockchain technology, but are fundamentally different from cryptocurrencies like Bitcoin. The panel of experts saw a bright future for security tokens, although some hurdles to their widespread adoption remain.

Unlike cryptos, which rely on the faith of their users to have value, security tokens represent something that has an intrinsic value. Security tokens could be used to replace the infrastructure that currently exists for trading equity or debt, or augment the way that companies raise money with new forms of securities.

Growing Interest

Over the past year a number of events have furthered the use of security tokens in the real world. The
Security Tokens Realized conference is a good example of the interest that security tokens are gaining in institutional finance.

According to André Portilho, who is a partner at investment bank BTG Pactual in Brazil, “We still live in a world in terms of finance and investment that is quite local.

Portilho also points out that anyone who isn’t in possession of substantial cash assets will be limited to investing in their own country, but security tokens have the potential to change everything.

BTG Pactual recently launched an STO that helped global investors access real estate in the form of a security token. The bank was successful in reaching their minimum fundraising goal, although it had to create a secondary market for the real-world asset it securitized.

The need for a global security token market is growing. Forward thinking exchange operators are working on solutions which may help the security token market grow its liquidity base.

Global Markets are Opening to Digital Assets

William Rawley, the General Council for the Gibraltar Stock Exchange (GSX) stated that, “Our endgame is to have a distribution to individual account holders.
(25:30)” The GSX is working on adding digital assets to its global market, which is a Multinational Trading Facility (MTF).

While GSX’s MTF is generally used by professional investors, the groundwork it is doing with digital assets could help the GSX to reach its endgame of direct delivery of digital assets to retail account holders.

The technology involved with creating markets for digital assets, including security tokens appears to be mature. The regulatory side of the equation is more challenging. Depending on how an asset is securitized into security token, the regulations can be complex.

Security Tokens Offer Flexibility for Asset Structure

Henry Arslanian, the head global crypto operations at PwC says that he likes to call it, “The democratization of the asset class.
(28:56)” Until security tokens came along, large assets with a big price tag were only marketable to a select group of investors.

Arslanian says that security tokens could remove this, “illiquidity discount,” and bring globally important assets to a new class of digital investor. Not only do security tokens give asset holders new ways to market their holdings, the structure of the asset could be novel as well.

Dusica Lukac from DL Capital Partners also mentioned that, “I think that STOs and token provides much more flexibility in structuring, designing, strategizing than shares itself.
(43:44)” A security token can represent just about anything, as long as regulators will allow it to be created.

For example, a security token could be created that represents both the ownership of a large building, and the revenue from its operation.

The security token could be created to pay its holders income from the operation of the property, or use the profit to expand into another property and build more equity. These kinds of arrangements aren’t straightforward with current security structure, but would be much easier to create with security tokens.


Security Tokens Face Challenges in a Wary Market

Everyone involved in the discussion agreed that security tokens have tremendous potential. Although they are a potentially powerful financial structure, there are numerous issues that the space needs to address.

Bernardo from Liquia Digital Assets pointed out that, “Traditional investors, at least institutional, they don’t have the mandates to invest in crypto.

One of the biggest challenges for security tokens is that they are seen by many in the established investment community as more crypto than security, which may take some time to overcome.

Security tokens are fundamentally different from a cryptocurrency like Bitcoin, but most institutional investors simply can’t support an asset that still has so many uncertainties surrounding how they are traded, where they stand legally, and how custody is guaranteed.


The Future for Security Tokens is Bright

Security tokens are getting a lot of attention from multiple angles. Established industry professionals see security tokens as a potential revolution in how corporate actions and procedures happen.

Getting rid of annual general meetings would mean huge cost-savings, and the advent of much higher levels of efficiency in the corporate world.

Creating awareness among institutional investors and regulators is still a challenge for anyone who wants to create an STO, but according to the panelists, regulators are already well-versed in how security tokens work.

If you want to learn a lot more about the state of security tokens, and where they might be used next, watch the full video at the top of this page
. Thanks again to everyone who participated in this meaningful discussion, and all the great questions we received from the audience!