In early 2018 many highly respected individuals in the cryptocurrency space have been predicting this year to be the “Year of security tokens”. Although these may have proven to be inflated expectations, the value proposition of security tokens is very strong indeed and it’s a trend that active investors should be keeping an eye on.
In essence, security tokens are a blockchain-based representation of an asset subject to securities laws. Tokenized securities can represent company shares, real estate, precious metals, and more. While ICOs managed to raise over $6.3 Billion in the first half of 2018, they haven’t peaked the interest of major institutions since most ICO tokens don’t give investors any rights, and in some cases, they don’t appear to have any intrinsic value at all.
Security tokens aim to solve this problem and open the gates for institutions by giving investors actual shares in investment vehicles. Securities regulations are very well defined in most countries and aim to give investors additional safety when committing to an investment.
Ravencoin is a fork of Bitcoin fine-tuned for the creation and transfer of tokenized assets. The whitepaper was written by Tron Black and Bruce Fenton, two well known early adopters of Bitcoin and security token experts. The project is also being supported by Overstock, a highly respected firm in the cryptocurrency space who has admitted to having purchased millions of RVN on exchanges.
Issuing assets on Ravencoin can be compared to reserving a domain name: asset names are unique, and once you reserve one, it’s yours forever. When issuing an asset on Ravencoin, 500 RVN are permanently burned. Issuers also have the ability to create “sub-assets”, which only cost 200 RVN.
Over time, if the protocol is successful, this burn mechanism will drastically reduce the total supply of RVN, thus increasing the price per coin. With a total supply of 21 Billion RVN, there is a theoretical maximum of 42 Million assets that can be created on the chain. While this may seem high at first, it’s important to note that in the United States alone there are 63 million registered companies and 126 million homes, and this is only a small fraction of the assets that would benefit from being tokenized.
Ravencoin was recently listed on Binance and is trading at a market capitalization of around $40 million at the time of writing.
After holding a $200 Million ICO in early 2018 and with many big names onboard like Patrick Byrne (CEO of Overstock), Erik Vorhees and Bruce Fenton, PolyMath is one of the most reputable security token issuance platforms in the space. The company has created a very straightforward platform that anyone can use to create a tokenized asset on Ethereum, it also connects token issuers with legal service providers, KYC firms and investors.
PolyMath has already tokenized hundreds of millions of dollars worth of securities since the launch of their ICO, including the STOs of 7Pass, Corl, and BlockEstate. The company is also officially partnered with BlockTrade and tZero, two digital asset exchanges that will also enable trading of security tokens. However, with new competitors like Aboveboard and Harbor launching their platforms, it may prove to be hard for PolyMath to keep its status as market leader.
PolyMath doesn’t have its own Blockchain and the POLY token is an ERC-20 token on Ethereum. Its main utility is as a currency on the PolyMath platform, token issuers can use it to reserve an asset name, pay for services related to issuing a security token, and investors can use it as a currency to invest in security token deals. There have been some controversies with PolyMath since the company backpaddled on some of its initial promises and POLY now isn’t the only method of payment on the platform.
However, if the company positions the token well on the platform and the security token trend starts gaining traction, it could prove to have a strong value proposition.
POLY is listed on most major cryptocurrency exchanges and is currently trading at a $55 Million market capitalization.
Republic Protocol (REN)
Republic Protocol is a decentralized dark pool exchange protocol. In traditional equities markets, dark pools are private exchanges used for trading large order blocks in an anonymous matter. Dark pools are used by institutions and high net-worth individuals to avoid the price slippage caused by making large trades on regular stock market exchanges. It is estimated that up to 15% of all equity trades are executed in dark pools.
Republic Protocol held an ICO for its native token REN back in January where it raised ## and obtained a lot of media attention because of the big names that invested in their token offering. Republic Protocol has investors onboard like FBG Capital, Polychain Capital, Huobi Capital and 1kx, which is often a positive sign.
On dark pools powered by the Republic Protocol, trades are matched by so-called “Dark Nodes”. Each Dark Node needs to stake 100,000 REN and run order matching computations in order to obtain a portion of the transaction fees generated from the trades. For a deeper dive into how to value REN, we recommend reading this excellent report by Blocktown Capital.
The Republic Protocol team has mentioned in their Telegram chat on several instances that security token trading is on their roadmap. Hence, if the protocol is adopted, REN will benefit from the security token trend. There are currently no other decentralized dark pools, which gives Republic Protocol a good competitive advantage to establish itself as a widely used dark pool for security token trading.
REN is listed on OKEx and Huobi and is currently trading at a $15 Million market capitalization.
With an average daily trading volume of $3 Billion, Binance is by far the largest cryptocurrency exchange. The held an ICO for its BNB token back in summer 2017, and both the exchange and its native coin have been on a parabolic growth curve ever since. A large part of its success is likely due to it’s brilliant CEO, “CZ” (Short for Changpeng Zao). Before founding Binance, CZ used to work at OKEx, where he was in charge of operations and growth.
CZ has big ambitions for Binance and has been under promising and over delivering since the launch of the exchange, forming relationships with heads of nations like Malta and Bermuda, starting work on a mystic project called Binancechain, and announcing a Binance decentralized exchange.
A recent announcement from Binance shows that security tokens have now also peaked CZ’s interest, the firm has announced that they have partnered with Malta to launch a security token exchange.
So far, Binance has incorporated the BNB token everywhere they could. BNB is currently being used by traders to reduce trading fees, as a coin for the “coin of the month” votes, for earning larger referral rewards and also as trading pairs. With that in mind, it is fair to speculate that BNB will also have some exposure to the security token exchange that Binance is planning to launch, which could make it an interesting coin to get exposure to the security token megatrend.
BNB is currently being traded at a market capitalization of around $1.1 Billion.
BnkToTheFuture is an online investment platform for Fintech, Bitcoin and Blockchain companies, the firm held a token sale in February 2018 where it raised $33 Million. The company’s portfolio includes well-known names in the space like Bitstamp, Kraken, Bitfinex and Shapeshift.
The native utility token of BankToTheFuture is called BFT. Although there isn’t a very detailed outline yet of how exactly this token will be used, the firm hints on their homepage that it will help in building a more decentralized listing process for new assets and also as a currency for investors to invest in new deals.
The next major step for the company is to launch a liquid secondary market for securities. In BnkToTheFuture’s own words, this comes with many regulatory and technical challenges, but they are aiming to launch a full securities marketplace by Q4 2018 according to their roadmap.
BFT is listed on major exchanges like UpBit and Bittrex and is currently being traded at a $23 million market capitalization.