Research by Optimas
Security token offering (STO) is the new buzzword in the digital asset ecosystem, and its promoters assure that, this time, they have found the killer app that will revolutionize financial asset ownership and trading. There are clearly a number of benefits to tokenizing existing assets via STO. Beyond complying with the existing securities regulatory framework, tokenization permits fractionalization of ownership rights, transfer of paper-based property rights into the digital world, emergence of a secondary market supported by the blockchain infrastructure, and access to a more global investor base. A closer look at the variety of assets that are currently being considered for tokenization—ranging from company shares to diamonds and fine art—reveals, however, that we again find ourselves in a “hammer-looking-for-a-nail” situation. The challenges when trading many of these assets is not the lack of proper infrastructure, but the expertise required to operate in these markets and the resources needed to ensure proper maintenance of these assets in the physical world. In addition, there is potentially a clear legal distinction between different types of assets. In certain cases, the token can be the asset itself (e.g., corporate securities), but for tangible assets, it can only represent a contractual right, as the asset itself cannot be digitalized. Hence, we expect numerous initiatives to fall short of their initial objective. However, STOs offer some clear potential for companies going through early-stage financing and could significantly improve the efficiency of private markets.