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Security Tokens Will Change Traditional Finance


Security Tokens Will Change Traditional Finance

Security tokens are seen to dramatically change traditional finance and even the way we live.

The development of blockchain is one of the most important technological breakthroughs as it opens doors to plenty of possibilities to improve the way we do our finances and the way we do things as a whole.

Blockchain, or distributed ledger technology (DLT), is the underlying technology for Bitcoin and cryptocurrencies or tokens. These tokens can be described in three categories depending on their functions, utility tokens, payment tokens, or asset tokens (security tokens).

According to Anthony Pompliano, founder and partner at Morgan Creek Digital Assets, security tokens are digital assets that are under regulations by federal rules. This means that they are a cross-section of traditional financial products and digital assets that continue to evolve.

He said, “If cryptocurrencies like Bitcoin are considered ‘programmable money’ then you can consider security tokens a version of ‘programmable ownership.’ This means that any asset with ownership can and will be tokenized (public and private equities, debt, real estate, etc).”

In an earlier comment sent to Cryptovest, Luc Falempin, CEO of Tokeny, said security tokens have dramatically expanded the ability to create new financial products. He also noted a significant rise in security tokens this year that offer benefits to both traditional finance and digital assets.

“The net effect of tokenized securities is to increase the liquidity of the underlying assets. Using an asset tokenization platform is becoming the de facto method to raise capital by issuing blockchain-based ownership claims,” he said.

Benefits of tokenization platform

One of the benefits of a proper tokenization platform is its ability to create an opportunity to tokenize funds or assets and services easily. The right platform will eliminate many of the technical challenges involved in the sale and management of both pre and post-sale of tokens.

“The issuance of new security or utility tokens can be easily managed on a tokenization platform. A successful token sale could end up receiving thousands of contributions in the form of fractions of thousands of ETH. The more success you expect to see in your project, the higher the need for a professional tokenization platform that can automate the process,” Mathieu Cottin said in a blog post.

But more importantly, security tokens can improve a number of features in traditional financial products because they can remove middlemen from the investment transactions (usually bankers). This results in lower fees, free market exposure, efficient transaction completion, larger potential base, lack of financial institution manipulation, and automated service functions.