What is asset tokenization?

The tokenization of assets involves issuing a blockchain token, specifically a security token, which represents a real-world tradable asset. These security tokens are created through security token offering (STO) where different types of tokens, such as equity tokens, utility tokens or payment tokens are produced. A security token can represent fractional ownership of an asset (such as fine art, real estate, etc.), or a share in a company, or participation in an investment fund. Post security token development, the tokens are traded on a secondary market.

Benefits of asset tokenization

The new token economy holds massive potential to build a more efficient financial world by alleviating friction involved in the process of creating, buying and selling of securities. The following are the benefits of tokenization of assets – for both investors and sellers.

• High liquidity

After the assets, especially private securities and illiquid assets, have been tokenized, they can be traded on the secondary market. The access to a large base of traders leads to increased liquidity, offering significant benefits to investors who have more freedom and sellers as the tokens benefit from greater liquidity, consequently acquiring greater value from the underlying asset.

• Faster and cheaper transactions

Smart contracts, which are software algorithms integrated into a blockchain to trigger actions when the pre-defined conditions are fulfilled, execute transactions of tokens, thereby automating specific parts of the exchange process. This automation streamlines the process of buying and selling tokens and mitigates the need for an intermediary. This leads to accelerated transactions and lower transaction fees.

• Better transparency

A security token is embedded with the holder’s rights, legal responsibilities and an immutable record of ownership. This allows for transparent transactions, enabling you to know who you are dealing with, what your and their rights are, and who the previous owner of the token was.

• More accessibility

Tokens are highly divisible, which means that investors can gain fractional ownership of an underlying asset. If the orders are easier and cheaper to process, it can forge the path for a considerable reduction of the minimum investment amount. Furthermore, greater liquidity of security tokens reduces minimum investment periods as investors can exchange their tokens on the secondary market that operates round-the-clock globally.

Important considerations for financial institutions to participate in the new token economy

The token economy drives a revolutionary shift from centralized trust agents to individuals. Cryptology makes third party functions redundant as blockchain participants run complex algorithms to validate the integrity of transactions. Financial institutions need to find out how to adopt and adapt to the new token economy. The following are the key areas that financial institutions need to take into account to survive in the token economy.

• Business model

Financial institutions need to decide on what role they want to play in the value chain. For example, they can serve as a safe keeper of tokenized assets, or harness their expertise as custodian banks to create life cycle event transactions on blockchain’s distributed ledger, or automate life cycle processing through the use of smart contracts and deploy them on a blockchain platform. In addition, financial institutions can maintain their customers’ accounts in cryptocurrency tokens or coins.

• Platform integration

Once the financial institutions have chosen their business models, they will have to implement different operating models. Since the key component of these new operating models is blockchain, financial institutions will have to choose the platform that they will work on or collaborate with. This decision will pivot around different factors like the regulation that has to be followed by the financial institutions, the services that they will offer to their clients, and other factors associated with the product, such as the product strategy and the potential of the product.

• Compliance

Financial institutions offering asset tokenization service need to comply with various obligations, such as Anti-Money Laundering (AML), Know Your Customer (KYC), Markets in Financial Instruments Directive (MiFID), and other obligations. The token economy directs more direct, expedited, and irreversible transactions, thus there is an indispensable need for operational measures to adhere to these obligations. Financial institutions need not start from ground zero, but they can partner with new players like tech startups or blockchain analytics software vendors to implement new operational measures and remain compliant with regulations while operating in the digital space.

• Jurisdiction

The legislative and regulatory frameworks vary from jurisdiction to jurisdiction, thus financial institutions need to ensure that the tokens comply with both token issuers’ and token investors’ jurisdictions. They need to have stringent measures in place to prevent any investment that is not compliant.

• Security

The burgeoning popularity of Bitcoin and other crypto coins and tokens is making them a luring target for cybercriminals. Although the distributed ledger is reinforced with high-level security, owing to cryptology and consensus mechanism, there may be certain loopholes and the entire ecosystem needs to be fortified with top-notch security. Financial institutions should implement proper security measures to secure the value chain and offer advanced, secure solutions to their customers to store their wallets and private keys. The institutions should carefully orchestrate security at various levels – from network and infrastructure to systems and applications.

Take away

Tokenization forges the path for a new financial system that is more democratic, efficient, and vast. Asset tokenization is gaining rapid adoption – new players are building their infrastructures while traditional players are upgrading their existing infrastructures to integrate the new token economy.

If you are planning to embrace the token economy to stay relevant in the market, Antier Solutions can help. Our mission-driven asset tokenization service drives the development process, providing you with a perfect solution that facilitates market penetration and engagement with potential investors. Whether you want to tokenize a real estate asset, an art piece, any exclusive good, illiquid asset, or venture capital funds, our seasoned blockchain engineers can effectively cater to your requirements.

A free consultation is available to discuss your business needs, no obligation, just a friendly chat to work out if we can help.

The post Why Should Businesses Embrace Asset Tokenization? appeared first on Antier Solutions.

Introduction

Security tokens further revolutionized the fundraising paradigm. These are the digital tokens and their evolvement is based on the concept of tokenization. The value of security tokens is based on the key factor of the type of asset. Real estate, art piece, exclusive goods, or trust are some of the assets that are tokenized. The evaluation of the asset is directly proportional to the value of the security token.

How is the procedure of security token offering carried out?

For carrying out the release of the security tokens, first and foremost the regulatory legislations need to be ascertained and fully understood according to the chosen jurisdiction. For an instance, if an individual is planning to release a security token in the US market, then the issuer has to be fully equipped with the SEC (Securities and Exchange Commission) regulations prevalent there. He should be able to distinguish between Regulation S to Regulation A and Rule 506(b). The option chosen between the abovementioned security regulations will determine the future course of the action in terms of legal obligations.

Secondly, the process has to be KYC and AML compliant for the verification of the user identity, which consists of several stages. Nowadays, every security token exchange has to be accredited with the KYC/AML procedure. For example, according to the regulations of the SEC, each investor has to be compliant with the status of an “accredited investor”.

Finally, the marketing strategy for STO has to be completely different from that of an ICO. ICO takes into consideration the concept of crowdfunding with most of the focus on building a community around it. It also uses social media as a major influential platform. On the other hand, STO is for professional investors.

Challenges along the way

The future of STO is prosperous but there are still many challenges that have to be addressed along the way. The approval of legal regulations and passing of the Howey test have also to be aligned by the issuer. At present, the SEC is ahead of the regulations in the digital assets. It is assumed that the regulatory authorities will also keep updating the SEC policies from time to time.

Another issue is with the liquidity in the STO market.

Concept of Liquidity

Liquidity is described as the ability of an asset or security to get converted or sold in the market at the price shown as intrinsic value. It, however, signifies that the buyer and seller will easily be able to connect, thus performing a transaction in a designed time frame.

Liquidating STOs

The liquidity of coins or tokens is the major factor that entices investors to invest or trade. As in the secondary market, traditional equity shares or securities have to be linked with regulated exchanges such as NYSE (New York Stock Exchange) to bring the liquidity in the market. Similarly, security tokens have to be listed on the ATS (Alternative Trading System) which is according to the SEC Regulations.

For listing on a regulated security token exchange, various investor protection norms have to be followed which are mandated by the legal regulators. These include compliance with insider trading rules, counterparty KYC/AML compliance, suitability check for traders, restrictions on removal process including affiliates. All these checks are the actual requirement and legitimate. Thus while planning for an STO, these protections ensure the secondary liquidity on an ATS, therefore attracting more of primary investors.

A procedure has to be set wherein a buyer and a seller must be available digitally at the same time and thereby on the same venue for the tokens to pass through the network. In the traditional financial market, the problem of liquidity is overcome by the market makers. They act like the large financial institutions that leverage their capital reserves to maintain liquidity and for tolerating illiquidity risks. But this phenomenon cannot be applicable for cryptographic tokens because it centralizes the financial power in the hands of major capital holders which is a violation of the realm of blockchain.

Thus for maintaining decentralized liquidity in security tokens, capabilities of smart contracts can be leveraged within the tokens. In this, the tokens are bought and sold through the smart contracts. This mechanism works in such a way that each smart contract has connectors that are linked with smart tokens in the network. A relationship is maintained such that the balance of the smart tokens or its connected tokens is held in the connectors. The balances of the connectors are used to provide liquidity for the cryptographic tokens at the algorithmic prices.

In other words, anyone can purchase a smart token by depositing the amount in its connector balance linked with its smart contract. Thus, it increases the connectors’ balance and supply of the smart tokens. Similarly, when a seller sends back any smart tokens, then it will be removed from the connector’s balance. In this way both the connectors’ balance and supply of smart token decrease. This all can be maintained through a fixed ratio between the value of the smart token and the value of the connector balance.

The infrastructure that will support a high level of liquidity may take a bit of time. But this is how STOs can escape the trap of illiquidity and can improve their attractiveness to the investors.

The post How to Bring Liquidity to Security Tokens appeared first on Antier Solutions.

Blockchain crowdfunding covers mainly two major sets, including:

• Initial Coin Offering
• Security Token Offering

Initial Coin Offering is a cryptocurrency space where coins/tokens are launched and interested investors would invest in the offering. In return, an investor gets a new cryptocurrency token. ICOs experienced the hike till 2017, but gradually scams started pouring in which affected its credibility.

Hence, for a secured crowdfunding strategy, Security Tokens Offerings (STOs) came into force.

Security Tokens – Ruling the World

Security Token Offerings have gained a continuous momentum since 2018. According to a report by Inwara, 14, 26, 25 and 20 STOs were being launched in Q1, Q2, Q3 and Q4 of 2018 respectively. In Q1 of 2019, 47 STOs were launched. The exponential rise in the launch of STOs in the market creates a simultaneous demand for security token exchange development.

Countries leading in STO development and launch:

• United States – 11
• United Kingdom – 8
• Switzerland – 4

Industries leading in STO development and launch:

• Finance Sector – 6 STOs
• Energy Sector – 6 STOs
• Healthcare – 5 STOs
• Trading and Investing – 7 STOs

The regulatory bodies are in favor of Security Token Offerings, with US Securities and Exchange Commission (SEC) imposing regulations on crypto exchanges and ICOs.

What are Security Token Exchanges? Why is it essential to have one?

Security token exchanges, which fall under the bracket of Alternative Trading System (ATS), are the platforms where buying and selling of security tokens are initiated. As STOs have emerged as a reliable method of the fundraising, the demand for security token exchange development is also increasing.

The Alternative Trading System (ATS) matches the buyers and sellers to find counterparties and serve as a broker-dealer relationship rather than an exchange. Security Token Exchange requires ATS license, which needs the approval from the SEC.

Features of Security Token Exchanges are:

• Multiple Currency Trading: With many cryptocurrencies floating in the market, majorly Bitcoin, Ethereum, Litecoins etc. Security token exchanges should be well integrated with various cryptocurrencies.
• Multi-Language Support: The main focus of STO is to encourage the worldwide investors to come forward. So the Security Token Exchange should also support various languages to provide ease to the traders.
• Wallet Integration: The security tokens need to be placed in a certain wallet. Wallets need to be embedded in a security token exchange, just like any other cryptocurrency exchange.
• Order Matching: The matching engine pairs the order between buyers and sellers of security token exchange instantly in the market place.
• Escrow System: The trading between the buyer and seller are exchanges through a system of smart contracts, which efficiently processes the transactions.

Now, let’s further have a look at the list of countries who are taking a first mover advantage to harness the potential benefits.

Top Countries to set up Security Token Exchanges

By now you must be well versed with the viability of the security token exchanges. Let us further comprehend which countries are friendly to STO exchanges because being a businessman it is crucial to consider this aspect.

Malta: Malta is known as the world’s first Blockchain Island due to its much hype for the Blockchain Technology. The regulators in Malta are favorable to the FinTech industry. There exists a huge potential in Malta as the experts are eager to enter this region.

Estonia: Located in the Northern Hemisphere with favorable legal considerations for crypto exchanges, Estonia is considered the best country for the launch of security token exchange. Comistar Estonia, a security token exchange, was launched last year for the entire European region.

Switzerland: Switzerland is called “crypto valley” and is a huge hub for cryptocurrencies. The launch of a greater number of security token exchanges can be anticipated in this region in the near future.

Dubai: Dubai is a financial hub where all technology-related aspects are first to be considered. The country issued a state-backed cryptocurrency in October 2017. In February 2019, the Dubai Multi Commodities Centre (DMCC) got the ball rolling for the promotion of cryptocurrencies. Thus, Dubai is a major prospect for the development of Security Token Exchange Platforms.

Canada: In February 2019, the Canadian Securities Exchange declared their plan to launch a security token exchange, thus making the country a potential region for investing for entrepreneurs.

Summing Up

Security tokens have proved their vitality in the current space. Although security tokens are still in the developing stage, things are moving faster than expected. As the number of security tokens increase, there will be an increasing need for security token exchange development to have an ATS in place to allow the exchange of security tokens.

The post Security token exchange development: Gaining worldwide acceptance appeared first on Antier Solutions.

If you are new to the crypto world, or probably if you are not active in the STO market, specifically, you may have various questions regarding what is tokenization or STO. In this article, we’ve discussed securities, tokenized securities and security token exchanges, to help you comprehend the STO ecosystem.

What are Securities?

According to Investopedia – “The term “security” is a fungible, negotiable financial instrument that holds some type of monetary value. It represents an ownership position in a publicly-traded corporation—via stock—a creditor relationship with a governmental body or a corporation—represented by owning that entity’s bond—or rights to ownership as represented by an option.”

Securities may include, but are not limited to:

• Stocks: Embodies part ownership of a public company
• Options: Representation of rights to ownership
• Bonds: Debt financing, issued by organizations such as governments, state, and municipalities but also by private organizations
• Exchange-Traded Funds (ETFs)
• Real Estate Investment Trusts (REITs)
• Index funds

Why do investors buy securities?

There are mainly two reasons as to why an investor would buy securities.

• Investors expect that the value of the security will generate profit once it is sold.
• Investors are interested in the rights as the security provides them access to dividend payouts, interest, and appreciated sale at maturity (bonds) or voting rights.

Fungibility and negotiability are two key attributes of STO. The fungible assets are interchangeable with other individual goods or assets, making the exchange and trade processes even simpler. On the other hand, a ‘security’ is a financial tool that is backed by tangible real-world asset class such as the revenue or operating profit of a company. Hence, showing the ownership information of the product into which the investors put their money.

The Advantages of Tokenizing Securities

Security tokens are mostly similar to traditional securities, but there’s one difference, i.e. the tokenization of these assets. This is intriguing because the technological upgrade that Blockchain technology can bring will improve the dynamics of the traditional securities, shifting the outdated infrastructure of this industry to a higher level. The benefits of tokenizing securities include:

• Programmability of securities (automated dividend payouts, integrated voting protocols, regulatory compliances like reporting, KYC and AML procedures)
• Augmented transferability of ownership
• Interoperability of unrelated securities
• Round the clock security trading
• Drastic cost reductions due to the removal of the middlemen
• Fractionalization of securities and the assets they represent
• Major boost of the addressable (global) investor pool
• Immutable transparency

Different types of Tokens

• Utility tokens:

They represent access to a company’s product and services provided by the network. These are designed as purchases, not as investments.

• Payment tokens:

Also known as transactional cryptocurrencies, payment tokens are based on Blockchain, which act as a digital currency that is created as an alternative to traditional currencies for making financial transactions.

• Security Tokens

Security Tokens are similar to traditional securities that include stocks, bonds, and options. Also, they come with a strong technological upgrade, providing them the potential to transform the financial industry.

What is an STO Exchange Platform?

As the traditional securities are bound to upgrade technologically, so is the infrastructure for the exchange of these assets. Securities can be bought and sold through:

• Brokerage houses
• Directly from the issuing company
• Banks
• Peer-to-peer

A security token exchange is a platform that facilitates buying and selling of security tokens for the investors. For this an entirely new technological infrastructure is required, however, they are still bound to the rules and regulations of a traditional platform.

Since an STO exchange platform is being built from scratch, it can tackle all the problems of a traditional platform in its architecture. Even though security token exchanges are bound by jurisdictions, Blockchain technology and tokens have strong global appeal. With enhanced regulatory frameworks, these exchanges can open up investment options for a huge audience.

As the underlying infrastructure is Blockchain, the ownership of the tokens is embedded in the token itself, making the transferability even more secure and instant, which is something traditional security trading organizations cannot provide.

The most promising benefit of a security token is the programmability of securities. For an STO exchange platform, a lot of services currently provided by the middlemen (underwriting, regulatory compliance, KYC and AML obligations, insurances and security) can be automated and provided through smart contracts and Blockchain technology.

To sum up, the increase in popularity of security tokens has led to an indispensable need for a security token exchange platform to trade these tokens.

The post Everything you Need to Know about an STO Exchange Platform appeared first on Antier Solutions.

If you are planning for security token exchange development, you are more likely to generate more revenue, the reason being the worldwide acceptance and adoption of security tokens and thus the increasing demand for security token exchange platforms to buy and sell these tokens.

Let’s gain an in-depth insight into security tokens’ potential to transform the crypto industry, to solidify your decision to build your security exchange.

Security Tokens – Revolutionizing the Crypto Market with Legal Fundraising Paradigm

Security tokens are akin to traditional securities but have one difference – tokenization of real-world assets like real estate, exclusive goods, mining repository, and more. Security tokens forge a path to:

• High liquidity – startup equity, LP shares, and fine art are all illiquid assets. Security Token Offerings (STOs) have the potential to unlock liquidity. They make small, private non-liquid securities accessible to everyone.
• Transparency and round the clock access – Blockchain technology is transparent and open; it is open 24/7. It pivots around the concept of a global, national agnostic market that is always operational, thereby allowing faster and cheaper trades.
• Programmability – unlike many legacy stocks, security tokens are programmable. You can command security tokens to do anything – automate corporate governance, proxy voting and dividends.

Besides these benefits, security tokens are poised to disrupt the crypto market in the following five ways:

Ownership and compliance

The programmable nature of security tokens allows compliance protocols to be embedded into the actual asset, and the protocols can be amended over time. This means that there is no limit to the rules and systems that can drive an STO.

Alleviated frauds and money-laundering

As the number of middlemen decreases, the chances of corruption and manipulation, during the investment process, would mitigate considerably.

Better cryptocurrency ecosystem

Increased credibility and regulations associated with security tokens will certainly build traditional investors’ trust in cryptocurrency, who are currently skeptical about digital currencies. This would bring in new market players and capital. Investors relying on institutional adoption would start considering security tokens, and not just Bitcoins.

Ownership of tokenized assets

Utility tokens were created with intend to provide investors with future access to a product or a service, however, security tokens provide actual ownership of an underlying asset. Anyone investing in a real estate token gets fractional ownership of that tangible property rather than an IOU.

Increased innovation

A regulated tokenized ecosystem paves the way to greater acceptance and innovations in the crypto world. It means more investment opportunities and huge returns. The trend has already commenced as businesses and individuals are considering building security tokens and indulging in security token exchange development.

Security Token Exchange – An Alternative Trading System Fueling Security Token Trading

A security token exchange falls under the bracket of Alternative Trading System (ATS) which matches buyers and sellers to find counterparties for transactions. An ATS is regulated as broker-dealers rather than as exchange and provides a market place or facilities to bring together the buyers and sellers of securities. Alternative Trading Systems need approval from the SEC.

A security token exchange facilitates buying and selling of security tokens. It requires a new technological infrastructure that is fully-compliant to the SEC regulations.

There are certain limitations to the infrastructure design of conventional securities. Most issuing companies, banks, and peer-to-peer platforms are permitted to operate in their regional jurisdiction and cannot allow trading of securities outside of this jurisdiction. Furthermore, most security services are only accessible to investors that fulfill a specific criterion and are open during business hours only.

Security token exchanges built from ground zero can address these problems in their architecture. Although security token exchange platforms are bound by the jurisdiction in which they operate, they can allow security trading for a much broader audience without closing times – owing to Blockchain technology. Moreover, Blockchain technology allows the ownership of security tokens to be embedded in the token itself, allowing secure and instant transferability of security tokens.

Must-have Features of a Security Token Exchange

When indulging in security token exchange development, businesses and individuals can reinforce their exchange with the following features:

• Powerful matching engine – to match buy and sell orders with minimum latency.
• Secure hot wallet – to provide exchange users with a secure infrastructure to send, receive and store their security tokens. Fortifying the wallet with multi-sig feature can enhance the security paradigm manifold.
•  Multi-layer security – to allow secure trading. You can underpin your exchange with market-leading security features like two-factor authentication, data encryption, SSL encryption, HTTP authentication, anti-Distributed Denial of Service (DDoS), Cross-Site Request Forgery (CSRF) Protection, and more.
• KYC and AML Verification –geography-based KYC helps verify user identity while following the right protocol. This allows secure access to the security token exchange by only legitimate and authenticated users.
• Multi-currency Transactions –to enable a seamless integration of multiple cryptocurrencies and fiat currencies into the exchange as per your business needs.
• Payment Gateway Integration – to allow exchange users to buy and sell security tokens using fiat currencies via a credit card, debit card, and other payment systems.
• Multi-language support – to expand the reach of your security token exchange globally.

Build your Security Token Exchange with Industry Experts

There are various aspects like security, performance, user experience, and the SEC compliance that need to be handled during security token exchange development. At Antier, our Blockchain experts take care of all these aspects and toil relentlessly to deliver a product that helps you accomplish your business goals. We create a security token exchange which is compliant with the SEC regulations set for an Alternative Trading System.

Our coherent roadmap and technology-agnostic approach navigates your security exchange development journey. We reinforce the exchange with industry-leading features to achieve world-class performance and user experience. Our mission-driven services accelerate the deployment process, suit all budget needs and help you stay ahead of the game.   

The post How to Build a Security Token Exchange Platform appeared first on Antier Solutions.

In the wake of major ICO scams rocking the cryptocurrency market, investors have now turned towards STOs with a hopeful eye. There is little doubt that security tokens are the future of coin offerings for they promise the proverbial ‘safety net’ to speculative sponsors.

But security cannot be ensured without regulatory compliance. Governments all over have been racking their brains to include and regulate the offering and exchange of digital currencies in their markets. Here is a peek into the regulatory structure of the United States and the European Union nations for floating a Security Token Offering.  

In the US, the SSEC (Securities and Exchange Commission), the CFTC (Commodities Futures Trading Commission) and FinCEN (Financial Crimes Enforcement Network) majorly govern asset-backed token offerings.

Long story short, if you are looking to launch an STO in the US, the following regulations apply.

US securities law is quite strict. Option one is that you register your offering as a traditional public offering. The compliance is pretty tedious and time-consuming. There are, however, a few exemptions.

EXEMPTION UNDER REGULATION D: When you are exempted from registering under SEC or being regulated by it

You are governed by Rules 504, 506B and 506C.

Now, Rule 504 exempts you from registering yourself under SEC. You could pitch to any US investors under this one but it caps your issuing capital at 5 million.

Under 506(b), you can raise more capital as there’s no capping in place, but you are allowed to only pitch to accredited investors. An accredited investor is a person or an entity that is already registered under the SEC and as such is being regulated by it.

This comes with its own set of complications. As per the US securities law, to be able to apply for becoming an accredited investor, you either need to have a net worth of USD1 Million, or a reasonably high income of at least 200,000 USD per year.

This specifically limits your investor pool, but at the same time, it also protects you from becoming prey to money laundering and sophisticated white-collar financial crimes.

Rule 506(c) also provides no capping, but you can only apply to accredited investors and only up to 35 non-accredited investors. You’re also not allowed to do aggressive marketing or advertising for your token offering.

There is also a constant lock-in period for holding investment, and resale is restricted under Regulation D.

EXEMPTION UNDER REGULATION S: When you avoid the US altogether

You’ll still need to choose a country with strong regulation in force otherwise no one is going to invest in your STO simply because you dangle the carrot of an asset backed security. Investors need security as has been amply proved by the Bitconnect scam.

EXEMPTION UNDER REGULATION A+: When you can raise up to 50 Million and solicit to non-accredited investors

This one has been more popular because it does not carry a resale restriction. But, where the stakes are high, so is the compliance. It’s long and procedural to apply under this exemption.

The SEC requires you need to show audited accounts for over 2 years. Then, you need to file your offering and get it approved by the SEC before floating it.

EXEMPTION UNDER REGULATION CF (CROWD FUND): When you can raise up to 1.7Million with a simple procedure

This one is pretty straightforward and designed for small businesses to raise capital from within their communities.

To wrap it up, the US regulation clearly suggests that the exemptions are made with the intent to help small businesses grow and sophisticated asset-rich token offerings must be willing to make it through the long haul i.e. registering themselves with the SEC.

Contrary to the above, the European Union takes a more complicated approach towards STOs. Each member country has its own regulations built around the concept, but they all need to follow the basic guidelines laid down by their central governing body, EU Commission.

It has to be noted that European Commission has been pondering over releasing a definitive law on cryptocurrency for a long time, and this approach has rather stalled the laws on further developments in the crypto world, specifically those related to emerging concepts like STOs.

As a starting point, the law does not explicitly define an STO. Nevertheless, experts in Europe have interpreted STOs as legally recognized transferable securities under the Directive 2014/65/EU of the Markets in Financial Instruments Directive II, or the “MiFID II”.

MiFID II, therefore, is seen as the main regulation while offering security tokens within Europe.

The next major legislation is the EU Prospectus Regulation that basically asks every token issuer to roll out a complicated prospectus before setting up a Security Token Offering, and get it approved by the appropriate authority. The procedure is long and approval can take up to months.

There are, however, a few exemptions to this. As an issuer, you could completely get out of drafting a prospectus so long as you meet any of these:

You are raising less than 5 million Euros in a year,

You are selling your tokens to less than 150 people in a year,

Each token is sold for at least EUR 150,00,

Each investor buys at least EUR 100,000.

Further, the member states have the power to exempt public offerings raising less than EUR 8 Million.

A major challenge, however, that every issuer must face is that one has to still comply with every member state’s national securities regulations in place before rolling out the STO in their space.

Europe also boasts of strict anti-money laundering and KYC procedures throughout which are a necessary compliance while offering tokens to European investors or raising investment within the EU.

Overall, interested parties worldwide await 21 July 2019, when the new regulations of the European Union Prospectus Regulation (2017/1129) will become applicable. This is expected to be a major source of relief for STO issuers planning to list and trade securities in Europe. Henceforth, the prospectus regulations and disclosures for small and medium level enterprises have been hugely simplified by the new regulation.

Time to dive deeper into the regulations in place by major crypto-players in EU:

France, at the forefront, recognizes STOs as financial securities.  The French CFM (Monetary and Financial Code) is now coming up with a new regulatory framework to be entered as Chapter V into the Book V of their CFM Code.

The term ‘token’ shall be defined therein, and it can be issued and transferred via a shared electronic registration mechanism. As an issuer, you will now need to comply with the regulations established by the CMF in France.

United Kingdom has taken a controversial stand by refuting the claim that utility tokens can be viewed as securities. In January 2019, the Financial Conduct Authority released a consultation paper CP19/3 on ‘Guidance on Cryptoassets’.

The consultation paper defines Security Tokens as tokens with specific characters such as shares or debt instrument, and are included within the ambit of the guidance.

The objective of this paper is to ensure that all transactions surrounding cryptoassets are appropriately interacting within legal parameters and to provide regulatory clarity to market players.

It also clarified that in light of Brexit, EU law would still continue to apply in the United Kingdom till 2020, thus making the EU Prospectus Guidelines and MiFID relevant and applicable.

The final paper is due to be released in summer 2019.

Germany, is ahead of the game in the crypto-world as its financial regulator, BaFIN (Federal Financial Supervisory Authority) recognizes public offerings based on cryptocurrencies. It has identified all regulations, and is willing to authorize Security Token Offerings, provided they comply with German regulations.

Having said that, BaFIN has examined each offering on a case-to-case basis. Fundamentally, the regulations under the European Markets in Financial Instruments Regulation (MiFIR), the European Market Abuse Regulation (MAR) and the German Securities Trading Act (WpHG) must be strictly adhered to. Detailed prospectus information as set out above in this article, is also a prerequisite.

Switzerland, having the reputation of a finance friendly destination, clearly recognises STOs as asset-backed tokens. As per FINMA (Financial Market Supervisory Authority), a security token is the same as any other security, such as stock or bonds.

So, as an issuer you need to apply for a ‘securities dealer license’ just as you would, were you offering traditional stocks or shares in a company. In line with EU Commission guidance, KYC is a mandate. Additionally, all the other regulations that apply to regular financial securities, like AML (anti-money laundering), recording of financial transactions, and market regulation, etc. also need to be strictly adhered to.

Notable Mention: Malta, a small and otherwise ignored cluster of islands is one of the most crypto-welcoming countries in the World. It has three distinct laws regulating STOs – Malta Digital Innovation Authority Act, Virtual Financial Asset Act, and Innovative Technological Arrangement and Services Act.

These laws together govern tokens and their exchange, offerings and transfers through digital ledger technology (DLT), provide detailed guidelines on smart contracts, STO structuring and as well as compliance requirements.

In conclusion, as of today – most of securities regulation depends on national laws of member nations. Europe still needs to bring forward a united stance on Security Tokens.

The post Decoding Compliance for Security Token Offerings : US and EU Overview appeared first on Antier Solutions.

Security tokens are revolutionizing the way in which assets and investments are looked at. Tokenizing assets and putting them on to the blockchain is unlocking huge opportunities for both token issuers and investors.

The benefits attributed to the popularity and adoption of Security Token Offering (STO) include fractionalization of larger assets, increased liquidity, greater market efficiency and reduced issuance fees. Besides the benefits, another major reason leading to the shift from Initial Coin Offering (ICO) to STO development services is regulatory bodies narrowing down hard on ICOs.

Individuals embracing STOs are enjoying the following benefits:

Regulatory Compliance

The blockchain technology and smart contracts enable the law and ownership to be directly defined into a token. This means that the security token is able to execute, regulate and govern itself. For example, a security token development company can program the token to verify who can buy and sell the token. This can restrict token holders from sending the token to any address that has not passed the required verifications. Token issuers can, thus, rest assured that their tokens are held by only authorized investors.

In addition, certain restrictions can also be imposed on token transfer. For example, if investors are not permissible to sell their ownership stake for a certain period of time, the same can be encoded into the token. This would prevent the token from being traded before the specified time period.

New Investors

 The global trading of security tokens provides huge opportunities for issuers to tap into the international pool of capital and expand their investor base. The regulatory framework governing security tokens encourages investors to put their money into these tokens without any concern of being scammed (like in case of ICOs).

The fractionalization of digital assets is another major factor to bring in more investors to security token market. Asset tokenization enables investors to own a small fraction of a stock, piece of art or real estate. Without STO development services, access to these assets was limited to investors with large capital and ability to make long-term investments.

More Liquidity

With security tokens enabling fractional ownership and lowering minimum investments, the cryptocurrency market can witness increased liquidity. Illiquid assets, or those that are not easy to resell, can enhance their liquidity on the blockchain by enabling investors to buy smaller stakes. For example, the owner of an expensive art piece is more likely to find investors interested in fractional ownership of art piece rather than the entire asset.

Furthermore, round the clock, global access to STO market contributes to increased liquidity of security tokens.

Intrinsic Value

Unlike utility tokens, which represent future access to a product or service of an issuing company, security tokens represent the underlying interest in equity, dividends, profit sharing, voting rights and other benefits for the investors.

Simply put, a security token has intrinsic value. This means that the token already possesses some worth which is based on the value it provides to token holder, irrespective of potential value of the token.

Security tokens provide the investors with a legal right to ownership of the intrinsic value of the company issuing the tokens. They offer significantly greater value to token holders while reducing the risk.

Transparency

The blockchain technology provides a uniform method for data verification and tracking, and its immutable nature prevents data tampering. The combination of all these attributes forms a perfect infrastructure to document ownership of security tokens in a transparent way.

Besides, STOs provide investors with complete, transparent information about the issuer – offering complete visibility on the number of tokens given, promised or otherwise discredited.

According to recent data analysis, security token offerings surged by 130% in the first quarter of 2019. It is envisaged security tokens would bring 10% of global GDP ($8 trillion) to the blockchain ecosystem by 2024. These numbers point toward booming STO market.

Individuals, seeking opportunities to capitalize on STO, must act now to enjoy the benefits offered by the market. Those planning to create their own security tokens to unlock better fundraising opportunities can partner with an experienced security token development company to navigate their journey in the right direction.

The post STO Development Services: Understanding the Benefits of STO appeared first on Antier Solutions.

To control these events, the U.S. Securities and Exchange Commission (SEC) started cracking down on ICOs. The SEC has put forth a framework to determine if a token sold in an ICO is under their regulatory purview.

In the wake of the downfall of Initial Coin Offerings arouse the need for a regulatory compliant token, hence security token. The industry is shifting towards Security Token Offering (STO), to capitalize on legal fundraising. Thus, the demand for security token development services is also increasing. Since security tokens are backed by a legal framework, regulatory compliance is indispensable. Other considerations to run a successful STO include technology infrastructure and secondary market.

Regulation governs how to conduct the STO, who can be approached to raise funds and what are the restrictions on the tradable asset after its launch. Technology infrastructure includes secure storage and transaction execution, and determines ecosystem interoperability. Secondary markets are the platforms for investors to trade security tokens.

Regulation

The idea behind fundraising through security token offering is to raise money from investors without the registration burden of an Initial Public Offering.

However, there are varying degrees of regulation to launch the Security Token Offering, depending on how much you plan on raising, from whom you plan to raise and how you plan to do it.   

A clear intend to launch the STO helps determine the SEC regulations that need to be adhered. The STO that has been launched simply to raise the funds has to comply with different set of regulations compared to the STO launched with the idea to get the funds in the hands of customers.

An experienced security token development company that offers comprehensive STO development services can help address all of the legal aspects related to the STO. Partnership with such a company can help in successful launch of SEC-compliant STO.

Technology

Primarily, it is important to consider on which blockchain the token will be created.  Next, there is a need to decide upon the design of the token so it is both secure and interoperable with the market.

Most token issuers choose to standardize on the ERC-20 standard. It creates a new ledger with its own native token or unit of account on top of Ethereum blockchain. The major reasons attributed to worldwide acceptable of ERC-20 are its simplicity of design and ease of interoperability.

It is important to design a token with interoperability in mind. Choosing the wrong standard is more likely to deter investors from securely storing their tokens. In addition, secondary markets may lack the capability to host such tokens. The wide network for ERC-20 standard enables most cryptocurrency exchange platforms and wallets to easily integrate ERC-20 based tokens.

Given that security tokens need to comply with regulations around who can buy, trade and interact with tokens, companies have created new standards. They take the ERC-20 model and include additional complexities, like address whitelistings and locking, to enable tokens to adhere to security regulations. These new standards are ERC-20 backwards compatible. It means that any cryptocurrency exchange or wallet that can host ERC-20 tokens already has some or complete infrastructure required to easily host a token built on new standard.

The cryptocurrency market offers various other standards, except for ERC-20, to build security tokens. Considering business needs and selecting the right standard accelerate the development of SEC-complaint security token.

Secondary Markets

Secondary markets are the platforms where STO investors can sell their tokens in an open market. Secondary markets are extremely essential for a successful STO as they provide the investors with a way to trade.

When considering security token exchange platforms as a secondary market, businesses can choose between two options – centralized and decentralized exchange. Centralized exchanges are regulated and user-friendly. With decentralized exchanges, users need to manage their private keys on their own. Furthermore, there is a greater reliance on smart contracts.

Security tokens are fueling the future of legal fundraising and unlocking better opportunities to raise funds. Businesses that comply with SEC regulations, partner with the right security token development company to steer their STO journey, and have the right marketing strategy in place can enjoy the real benefits of STO and position themselves for growth.

The post How to Run Security Token Offering in Compliance with New SEC Guidance? appeared first on Antier Solutions.

Most utility tokens lack intrinsic value as they are not backed by anything tangible. Although utility tokens have value within the platform on which they operate, they have no unique value proposition. This is the reason that the value of utility tokens, both during ICO and post-ICO, is based on speculation rather than the soundness or legitimacy of the tokenomics model.

Asset-backed tokens carry an actual value since they correlate with a real-world asset’s value. Asset-based tokens offer secure, quick and minimal cost trading of traditional assets through blockchain technology. In addition, they have the potential to enhance liquidity for traditional securities.

Why should you tokenize an asset?

Asset-based tokens maximize fundraising opportunities for businesses. This is why STO development services, to tokenize real-world assets, are gaining traction globally. Another reason to tokenize an asset is to enhance its liquidity. Usually, assets like stocks and bonds enjoy high liquidity. Conversely, real estate, vehicles, art, jewelry and collectibles lack secondary market trading and liquidity. Secondary market is where investors buy and sell securities that they already own.

The importance of liquidity can be understood from the fact that liquidity correlates with the trading volume of an asset and affects its price. Good liquidity can improve an asset’s value. It mitigates the risk associated with being unable to exit quickly.

A tokenized trading market that operates round the clock improves price discovery, minimizes price volatility and allays flash crash risk.

Use Cases of Asset-Backed Tokens

Tokens backed by external assets can be compared to gold-backed paper currencies. However, things become complex when tokens are linked to non-fungible assets like real estate. The real estate market is illiquid and afflicted with inefficiencies. For example, middlemen receive a portion of investment for the assumption of counterparty risk. These pain points can be reduced by asset-backed tokens, which tokenize a portion of an individual’s ownership in a real estate asset.

The most novel asset-backed token use cases are emerging from tokenomics model backed assets having limited liquidity, like private equity, derivatives, real estate, collectibles and other non-fungible assets. Besides, the largest asset-backed token use cases, which can accelerate fundraising, emerge from tokenizing a portion of debt or equity of a large established company.

Some of the use cases of asset-backed tokens include:

• Tokenization of corporate debt or equity.
• Tokenization of Real Estate Investment Trusts (REITs). These tokens can be customized and sold to investors seeking a certain level of credit risk and duration.
• Tokenization of commercial real estate equity or rental income. The commercial real estate sector is currently unaffordable to multitude of people. Fractional ownership through STO development services provides an opportunity to democratize commercial and rental investments.
• Tokenization of debt collateralized by payables and receivables. These tokens can replace supply chain finance and factoring with tokens and data flowing between accounts payable and accounts receivable in ERP systems.
• Tokenization of intellectual property such as royalty payments and film licenses.

Tokenization of real-world assets on the blockchain provides access to potentially large addressable markets.

Opportunities for Security Tokens

Bitcoin is regarded to have greater fungibility, transferability and divisibility. Asset-backed tokens retain most of these benefits.

Asset-backed tokens are less volatile compared to utility tokens and cryptocurrencies. Tokens listed on exchanges may trade constantly with full price discovery. Markets operating irrespective of geographical location or time zones may provide more opportunities for security token trading globally. The market may see a considerable increase in demand of STO development services as more established companies begin to issue asset-backed tokens.

The post Understanding Asset-Backed Tokens: A Complete Guide appeared first on Antier Solutions.

The STO landscape comprises various buzzwords such as security tokens, digital securities, tokenized assets, security token development, and more. These, in terms of traditional securitization, refer to the age-old process of issuing, managing, distributing and trading financial assets and physical assets. The definition of security varies with the country, but can be seen from some known asset classes, like:

• Financial assets, including:

Debt and derivatives, such as bonds, mortgages, derivative securities and loans

Equity and funds, such as private company shares, fund interest, trusts, project finance, real estate investment trusts (REIT)

• Physical assets, including exclusive goods (like gold, jewelry), commodities and real estate.  

Tokenization is the process of creating a unit of ownership in one of these classes by leveraging blockchain technology. A security token represents shares in a fund, interest payment on a bond class or the right to a property. Tokenization also allows issuers to offer fractional ownership of a single asset by creating multiple tokens linked to a single underlying asset. For example, multiple people can own tokens that represent fractional ownership of a single property.

Why is blockchain-based tokenization better than traditional securitization?

The three distinct features reinforcing blockchain have the potential to significantly improve financial market infrastructure by mitigating overhead cost, improving liquidity and promoting operational efficiencies.

Security token issuers, operators and investors can exploit blockchain technology to:

Set specific rights and limitations for digital asset

A smart contract manages the rights and restrictions and enforces the same to each digital asset, or a token, through a program. With traditional technology, these rights and restrictions are managed and applied by the exchange.

Execute near-real-time trades between two digital assets

High level of security and ease of interaction offered by a blockchain-based system allows direct exchange of value between two parties. For example, a party holding an asset which represents the value of $1 USD can exchange the same with another party having an asset representing 1 share of private equity fund, in real time on a blockchain system.

Maintain a complete audit record for each transaction

Each token transaction made on blockchain is recorded in a secure system that can be accessed round the clock to get real-time information. Furthermore, any document or data related to a digital asset stays with it throughout its lifecycle, in a centralized system of record.

In terms of securitization lifecycle, following are the seven benefits that can reduce inefficiencies in capital allocation, operational procedures and illiquidity:

Flexibility and compliance

Smart contract-driven security token development allows flexible and programmable compliance at the asset level instead of the exchange level. This allows any restrictions associated with deal structure to be directly encoded in the security and are applied throughout the life of the token.

Lower administrative costs

The blockchain technology simplifies token creation and distribution, reducing legal, technology and overhead audit costs.

Improved liquidity

Asset-level compliance means that security token issuers, operators and investors are not committed to a single pool of liquidity. The flexibility to access multiple exchanges makes problems like lack of price discovery and illiquidity discount redundant.

Real-time settlement

The on-chain payment rails allow real-time settlement of transactions, reducing operational cost of an exchange and promoting investor liquidity.

Efficiency

A real-time ledger of asset ownership coupled with on-chain payment rails automates management activities, making them highly efficient.

Investor reach

Simplified lifecycle processing and reduced overhead enable asset managers to reach a large number of investors.

Security token development and trading generate meaningful outcomes for token issuers, operators and investors. They unlock opportunities to gain access to more capital, efficient processes, enhanced liquidity, real-time settlement and streamlined compliance.

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