DealBox sponsors the January 20th, Blockworks webinar featuring Nick Grossman of Union Square Ventures, John Nance of DealBox and Stephen McKeon of Collab+Currency in an information rich discussion on the impact of Security Tokens on private equity and venture capital.
Five takeaways from a conversation between Nick Grossman of Union Square Ventures, John Nance of Dealbox and Stephen McKeon of Collab+Currency.
The following is a summary of a Blockworks webinar sponsored by Dealbox. For access to the full video, here.
- Security Tokens Haven’t Taken Off Yet – Here’s Why —————
In 2018 there was lots of excitement about security tokens as a more efficient way to own and transact in private assets. So three years later, why has there been almost no traction?
The short answer is that there was no infrastructure to support a liquid market. There were hardly any trading venues, custody was difficult, and there was virtually no liquidity. Issuers were unwilling to risk good deals on such an unproven ecosystem.
Since 2018, venues like tZERO and solutions like Dealbox are reducing frictions for issuers and bringing investments online.
- Liquidity is a Crucial Missing Piece of the Puzzle
Liquidity was (and still is) a key missing part of the equation.
At the end of the day, it doesn’t matter how frictionless owning tokenized securities are. If issuers don’t believe there is a liquid market to sell into, they won’t take advantage of the technology.
The growth of stablecoins, which are tokenized dollars, have acted as a useful proof of concept that tokenizing offline assets can make them more useful.
The recent success of stablecoins has encouraged large platforms like Coinbase, Anchorage, and others to build out the infrastructure required to support tokenized securities and aid in liquidity.
- DeFi Infrastructure Like AMM’s Will Help Accelerate Adoption —————
Innovations from the emerging sector of decentralized finance are helping out with liquidity as well.
2020 saw the birth of automated market makers, algorithmic agents that provide liquidity to electronic markets, that may eventually support deeper markets for security tokens.
Steve McKeon explains:
“Liquidity is one of the key benefits [of security tokens] that has been elusive but that people have been pointing to since the beginning.
To me the exciting thing about automated market makers (AMMs) is that a company itself can post [tokenized assets] a pool. So if you issue tokenized equity, you could take a bunch of those tokenized shares plus some stablecoins, and you could create the initial pool which facilitates instant liquidity.
[That liquidity] is not necessarily for gigantic blocks, but certainly it’s enough for retail traders to move in and out any time they choose.
That is just game changing relative to the way we think about private securities changing hands now.”
- Security Tokens Will Likely Take Off in International Markets First —————
One specific type of security token, which provides overseas investors with synthetic exposure to U.S. equities, is already taking off.
One example of these types of securities are the pre-IPO tokens that FTX has released for companies like Coinbase or Airbnb.
South Korea-based stablecoin Terra recently launched Mirror protocol, which allows its global user base to mint and trade assets that mimic U.S. stocks like Tesla or Apple.
- Wallet Proliferation is the Key Metric to Watch
Digital wallets are a key piece of infrastructure that may catalyze the development of markets for security tokens.
Most investors are still uncomfortable with the current setup required to trade security tokens. They dislike interfaces like Metamask, or worry about security issues like losing their private keys.
A widely adopted digital wallet with a comfortable user interface will go a long way in making these markets accessible to a wider range of investors.
Deal Box is an investment packaging company that specializes in capital markets strategy. DealBox partners with issuers looking to raise capital, and walks them through what the lifecycle of capital formation might look like for them.
What mechanisms are available to them today? What mechanisms might be available in the future? What structure is right for them to raise capital, not just today, but in the future, and what the implications of doing those things has on the long term success or growth or development of their company.
DealBox helped pioneer the securities token model and has recently launched an innovative digital securities platform that combines the diligence, accountability and trust of a traditional capital raise with the speed, flexibility, transparency, security and lower costs afforded by digitization and blockchain technology.
For access to the full video, click here