Among the blockchain tokens vying for investment dollars are those that represent other assets, ranging from real estate and intellectual property to stakes in emerging companies. The challenge for many investors, however, is finding a way to easily buy and sell them.
By the end of the year the first of dozens of alternative trading systems, or ATSes, will be up and running, predicted speakers during a Wednesday webinar. These markets, which will likely fall under existing regulations governing the trading of securities, represent an important piece of the infrastructure necessary for a broader range of investments to be exchanged using blockchain tokens.
“Tokenizing any asset, whether it’s real estate, commodities, dollars, or shares of stock is … accelerating,” said Scott Purcell, CEO and founder of , which provides technology for securities offerings.
Tokens allow a wider range of investors to participate and create new investment opportunities.
In Search of Liquidity
While a number of blockchain developers are focused on tokenizing assets of all kinds, the missing piece of the equation to date has been trading mechanisms, said speakers on Wednesday’s webinar, which was sponsored by CoinDesk.
Tokenizing, said Lehes, “is not really new… The really interesting aspect is the market infrastructure for trading tokens…. Flash forward a few years and you’ll have a [platform] to trade these shares.”
, which has filed an application to operate an ATS, envisions an ecosystem in which dollars or cryptocurrencies could be used to buy and sell tokenized securities on the blockchain, with smart contracts governing the process, according to Howard Marks, the company’s CEO and co–founder. When cryptocurrencies are used, trades could be cleared in seconds, he added.
, or cryptocurrencies pegged to fiat currencies, represent a powerful tool to support the liquidity of tokenized assets, speakers said. A vocal naysayer of volatile cryptocurrencies such as bitcoin (), Purcell said stablecoins are “something that can be used in commerce.” Lehes agreed, arguing stablecoins could be “of huge importance when people are moving in and out of investments.”
Along with ATSes, financial institutions or clearing firms will be needed to process payments and execute transactions, according to Purcell. “ATS have to be built, and the plumbing needs to be added,” he said.
Improving Regulatory Frameworks
While the recent assertion by a leading U.S. Securities and Exchange Commission official that ether () was seen by webinar speakers as encouraging, the reality is that most tokens will remain securities until they become decentralized to the extent that the issuing company no longer has control.
The SEC “set the bar pretty high,” Lehes said. “Most of the projects and tokens issued on top of Ethereum are going to be securities for the foreseeable future.”
Other existing U.S. regulations, including changes in the JOBS Act of 2012 that allowed crowdfunding and relaxed some rules involving investments open only to accredited investors, provide a framework which will allow more people to invest in tokenized securities, speakers said.
“My opinion is that the rules we have and all the other regulations out there as exceptions are pretty good,” Marks said. Respondents to a survey conducted by CoinDesk agree, with nearly nine in 10 saying that “regulations are moving in a positive direction.”
Another challenge involves overlapping regulations governing investments in different countries. “We think the blockchain is a fantastic way of solving some of these challenges,” Lehes said. “Creating a network that solves this on a global level is the right approach.”
Webinar speakers repeatedly touted the benefits of tokenized investments for a growing numbers of investors. Tokens allow a wider range of investors to participate and create new investment opportunities.
“The people who own cryptocurrencies were not necessarily wealthy from the start,” Marks said.
He called the five million small businesses in the U.S. that could have access to new sources of investment capital through tokenization new “investment opportunities that would otherwise not exist.”
One company on the Swarm network essentially tokenized the funds required to run a on the dash () network, while social impact investors could aggregate funds to award as microloans in developing nations. And instead of seeking a home equity loan, a homeowner could even conceivably tokenize a portion of their house.
“The democratization aspect is real,” said Lehes.