The creation of blockchain has been one of the most important technological advances of the 21st century and it has opened a number of doors to ways of improving the way we live.
Blockchain and distributed ledger technology (DLT) is the technology that underpins Bitcoin and cryptocurrencies. Tokens also use the same technology and they can be categorised in three different ways, depending on their use and function. These categories are; utility tokens, payment tokens, or security tokens.
Founder and partner at Morgan Creek Digital Assets, Anthony Pompliano believes that security tokens should be considered as digital assets and therefore should be regulated by federal rules. This means that they are essentially a mixture of new digital asset technology and more traditional financial products.
“If cryptocurrencies like Bitcoin are considered ‘programmable money’ then you can consider security tokens a version of ‘programmable ownership.’ This means that any asset with ownership can and will be tokenized (public and private equities, debt, real estate, etc).” Pompliano said.
In another comment from Luc Falempin, CEO of Token, he stated that security tokens have drastically increased the ability to create new and exciting financial products. He also commented on the significant increase in security tokens that offer benefits to both digital assets, and more traditional finance.
“The net effect of tokenized securities is to increase the liquidity of the underlying assets. Using an asset tokenization platform is becoming the de facto method to raise capital by issuing blockchain-based ownership claims.”
One of the main plus points of a good tokenisation platform is the fact that it is possible to create a way to tokenise funds, services, and assets in an efficient manner. A proper platform will eliminate any of the technical challenges that present themselves in the management and sale of pre and post-sale tokens.
“The issuance of a new security or utility tokens can be easily managed on a tokenization platform. A successful token sale could end up receiving thousands of contributions in the form of fractions of thousands of ETH. The more success you expect to see in your project, the higher the need for a professional tokenization platform that can automate the process,” Mathieu Cottin said in a blog post.
Most importantly, a security token can offer improvements to a number of features of traditional financial services as they have the ability to remove intermediaries from investment transactions. This means fewer fees, increased and free market exposure, quicker transaction completion, and a larger potential customer base. It also makes the market immune to institutional manipulation and automated service functions.