For the past several years, we’ve heard the crypto community espouse the benefits of security token offerings (STOs) — and yet few have successfully taken off. Why is this and what will turn the tide?
Why Security Tokens?
The biggest benefit of security tokens is the combination of their programmability and interoperability. By having multiple assets coexist on a shared blockchain and allowing them to interact with each other, we’ll see the emergence of novel, valuable financial instruments.
Imagine the entire DeFi ecosystem today — lending and borrowing, trading, creating derivatives, and more — but with the addition of tokenized assets. You could create a programmatic portfolio across multiple asset classes, rebalancing automatically. You could borrow a stablecoin with real-asset-backed collateral and use that to invest in a tokenized basket of startups.
It’s impossible to predict today all of the applications of security tokens, but it is clear that when tokenized representations of real assets can interact with each other, we’ll see significant financial innovation.
What’s the problem?
In order for multiple security tokens to interact with each other, there need to be multiple security tokens!
The security token asset class suffers from a cold start problem. With every new security token issued, the pitch for tokenizing the next asset becomes stronger. And with every new security token community member, it makes more and more sense to continue issuing new tokenized assets.
But in the early days of STOs — which we are still in — it takes a Herculean effort to push an STO through to completion. As adoption becomes more widespread and more assets are tokenized, each marginal security token will have an easier time.
The STO path forward
The solution is straightforward: a few very strong teams need to push through the fog of war and issue their own security token, despite the lack of significant precedent. And if those teams are able to successfully launch their token and increase the number of tokenized assets as well as growing community adoption, they will set the stage for a wave of tokenized assets to come.
The best version of this effort would be one where the broadest community can participate. Again: the wider the adoption, the better the results for security tokens.
Republic’s Note token is built for adoption. Between the asset itself — exposure to startups, which a broad community is eager to see — and the structure of a non-accredited offering, it’s positioned to educate and reach an incredibly wide audience.
If just a few security token teams are able to launch compelling products successfully, the momentum will build — and we could see the long-awaited wave of STOs come pouring in.
Andy Bromberg, President and co-founder of CoinList
The essay above represents Andy’s personal views and not those of CoinList or anyone else. This is not legal or investment advice.