4/3/19

Blockchain Technology and Securities Market

Much of the attention the blockchain and cryptocurrency markets received in 2017 and 2018 has waned as Bitcoin’s price has fallen about 75% from its peak. One area within the space that is growing in favor despite the broader negativity is securitized tokens.

In this case, the word securitized refers to turning blockchain tokens into legally compliant securities rather than, as some of us with finance experience would naturally infer, a bundling of assets (or tokens) to be sold as securities.

The value of all publicly traded stocks is on the order of $300 trillion. That measure doesn’t include privately traded stocks or any other security, like bonds (which exceed stocks in value) and derivatives. Reversing the nomenclature, the business of tokenizing securities has the potential to be big business.

Still, one would ask why anyone would want their securities tokenized. The logic is one that seems to me to conflict with many of the principles espoused in the crypto community, where libertarian ideas about eliminating central banks and diminishing the role of government in financial markets are pervasive. The logic for tokenizing securities is to make securities more self-regulating.

Blockchain technology allows for smart contracts that can be used to prevent ordinary investors from purchasing securitized tokens that they are not qualified to own. They can incorporate compliance with complex, international know-your-customer (KYC) and anti-money-laundering (AML) rules.

So, the technology that at times has seemed to befuddle securities regulators could now be used to with their blessing to help protect investors by enforcing securities laws.

One key premise of the technology is that assets that have traditionally been illiquid could become marketable, as the technology addresses the challenges of tracking the ownership even of fractional interests as well as by preventing anyone who shouldn’t from owning the security token.

(an excerpt from longer text on 
https://www.forbes.com/sites/devinthorpe/2019/01/18/how-blockchain-technology-will-improve-securities-markets/)


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