The Rise of Digital Securities and the Path Forward
Updated: Mar 28, 2019
by Mason Borda, CEO, TokenSoft
In the second half of 2018, Security Tokens became one of the most written about areas within the growing digital asset industry. Publications have started to call 2019 the year of the security token. We’ve also seen a variety of sources predict that security tokens will represent 10% of GDP by 2024 (which equates roughly to $8 trillion). Others peg the five-year outlook to something greater than $1 trillion. Near-term predictions are harder to come by; however, Daniel Masters, Chairman of crypto investment provider, CoinShares, and a former JP Morgan trader, said on a panel in November that the STO market could be worth as much as $3 billion by the end of 2019.*
Whether these predictions are right or overstated is hard to say. And we do not provide legal or financial advice. But in 2019 we believe savvy business leaders will seek to use digital securities as part of their growth strategy.
As background, we founded TokenSoft to support the complex compliance requirements of global companies looking to leverage token issuance. For the last few years, we worked primarily with blockchain-first companies. But late in 2017, we started to see a shift in interested parties. Now, banks and corporations are coming to us to understand how to leverage digital assets, and many signs that larger financial firms are working on their role in this space (likely to be significant over time). They’re seeking to leverage blockchain infrastructure to explore the efficiencies afforded by the technology – and they’re making fast progress.
Those involved in the space certainly experienced the slowdown in the 2nd half of 2018, especially from the startups or blockchain-first companies as they realized the real requirements of the evolving regulatory framework. Many jumped into blockchain projects without the understanding of whether their blockchain-based instruments were securities, which would require adherence to securities regulations.
In the fall of 2018, the Securities and Exchange Commission put a stake in the ground with cease and desist orders against Paragon and CarrierEQ, Inc. (dba “AirFox”). Soon after other companies, including Basis, were notified that they needed to refund their investors. Issuers are now understanding that compliant security tokens are the only viable way to proceed with confidence and success. They’ve seen that the consequences of having a token retroactively classified as a security by the SEC can be significant, in the form of fines, orders to return capital to investors, and even criminal prosecution.
With all of the above backdrop, we see three main trends for 2019:
1- Larger enterprises making a larger impact with digital securities.
2- Early issuers retroactively taking steps to meet security regulations in the U.S. and other jurisdictions.
3- Consolidation or focus within the technology platforms supporting digital security issuance.
Undergoing a token issuance continues to be a high-risk endeavor. If you are seeking to issue a token, it is important to work with a major law firm and to take careful consideration of all the regulations that may apply to your situation. If you’ve already issued a token and now want to ensure you are adhering to the right regulations, again, seek legal counsel and ask how we can help. In general, you should take a look at global securities laws, as well as commodities, banking, money transmission, tax and other relevant regulations.
Disclaimer: This press release is for informational purposes only and does not constitute an offer or solicitation to sell securities. Certain information set forth in this press release contains “forward-looking statements” under applicable securities laws. TokenSoft undertakes no obligation to update forward-looking statements if circumstances or management’s estimates or opinions should change, except as required by applicable securities laws.
*Crypto Briefing, Unlikely Source Predicts $1bn STO Revolution, November 13, 2018