As investors painfully endure through the crypto Winter, all eyes look forward to the “Crypto Spring”. The corrective pricing combined with brutal regulation will clear the playing field for institutional money. 2019 will see the crypto space become regulated and securitized. Thus, it will see the transformation of ICOs into securities. Along with new financial infrastructures to accommodate the demand for OTC markets, high frequency, and retail traders. The metamorphosis will begin with heavily regulated crypto instruments.
Security tokens are digital assets that give the owner a share of ownership from a company. They pay dividends and interests (via smart contracts), and generate profits for the token holder. Also, Security tokens have multiple advantages over ICOs: they are regulated, compliant, trusted by investors, cost effective, and automated. They can be automatically traded in open markets devoid of liquidity or trust issues.
Like ICOs, they require a support infrastructure like exchanges, custody, storage, etc. However, the key difference is that security tokens have the blessing from regulatory agencies and avoid the inconvenience of investigation and/or violations. Securitized tokens will also allow for the public crowdfunding similar to ICOs but with significant advantages.
Security Tokens Offerings
These are sales of security tokens where buyers can purchase them to trade, sell, or hold. Security Tokens are backed by tangible assets like certificates of ownership, profits, revenue, or the assets themselves. STOs will transform the ICO models in that they can be applied (or tokenize) to any asset. For example Real Estate, valuable metals, etc. With ICOs investing on a utility token rewards holders but provides no ownership into the project. However, with STOs, owners can legally and contractually have an expectation of profit. Also, STOs excel over ICOs in that they bring professional investors, long term investment, stability, private exchanges, low volatility, fraud prevention, etc. Lastly, STOs also provide for fractional investment.
ErisX crypto exchange backed by Fidelity, Nasdaq, Bitmain, and Ethereum studio, Consensys, TD Ameritrade, and Virtu will launch in Q1 2019. The exchange will offer spot crypto currency trading and Futures contract in Q2 2019. All Futures contract will settle in cryptocurrency, not in cash. In addition, It will offer further derivatives as it secures CDTC approval for them.
In addition, Fidelity will offer Custody services for institutional traders. Nasdaq will list a fully regulated crypto 2.0 Futures contract. Bakkt crypto exchange backed by the Intercontinental Exchange, Starbucks, Microsoft, Bitmain, and others, will launch on Jan 24, 2019. It will provide trading, custody, warehousing, clearing, Bitcoin-settled Futures contracts, and more. And LedgerX a crypto derivatives trading platform already secured licensing from regulatory agencies. And it will extend his product and service lines through next year.
Binance CEO Changpeng Zhao tweeted on Sept 29 that a public beta version of the Binance DEX could come at the end of the year or early next year. Decentralized exchanges are a compromise to mitigate regulation exposure and security. By nature, centralized exchanges have a central control center that are vulnerable to sanctions or hacking. On the contrary, decentralized exchanges diffuse all the data among all the nodes, making it hard to regulate or attack. However, these type of exchanges are slow, illiquid, and not user friendly. Nevertheles, given the risks of shutdown or theft, they will be a presence in next year’s crtpto space.
“During the gold rush, sell them axes.” This is the prevalent mentality driving institutions to develop solutions for crypto investors. The market may be down but this is not stopping long term development of the future of crypto.