Security tokens have the potential to completely change the financial market in the future. They grant you access to assets at a lower cost, while still being subjected to the regulations. This way, the market becomes increasingly available to smaller investors without reducing the security of the transactions. The number of uses for security tokens is constantly growing across the industries thanks to the many benefits they offer.
Some of the main benefits of security tokens include:
Increased transparency
Because security tokens are issued within a blockchain, they are easy to track and verify. Investors get a transparent view of the issuer’s situation and the history of their previous transactions. Since the information is visible to all the users and there is no chance of altering it, the risk of fraud is minimised. This not only increases the accountability of the firm but also helps secure the credibility of the offer.
Regulations
Many countries are currently working on creating new laws or trying to apply the existing ones to cryptocurrency-related projects. Since security tokens represent the ownership rights to an asset, they need to comply with the regulations. Otherwise, there would be a problem concerning the legality of the transaction. Blockchain technology allows the regulations and restrictions to be written into the token itself, which prevents any form of transfer which doesn’t pass the verification.
Liquidity
Security tokens enable fractional ownership, which significantly lowers the minimum amount of money needed to make an investment. This can change the way markets operate, e.g venture capital funds are usually considered to be very illiquid. Only big investment funds used to be able to be part of the VC market, because of the financial requirements. This made it impossible for everyday people to participate in the process. Now platforms like VNX Exchange aim to bring liquidity to the market through utilising blockchain technology. They create a secondary market for tokenized VC assets, which allows smaller investors new trading options.
Open market
Using security tokens can create opportunities for issuers and investors to access the global trading market. This could increase the speed of transactions, as such a market would be available to everyone who has an internet connection. For this solution to work, it needs to be properly regulated by the appropriate authorities. But the use of blockchain itself creates suitable options to implement such rules while still allowing democratised access to the capital. The availability of fractional ownership will lower investment costs and increase the number of investors even further.
Cost-effective
Trading of the real-world assets carries many additional risks and consumes a lot of time. The cost of security issuance includes several administrative and advisory costs. This is not set to change any time soon. But the implementation of security tokens could transform the market. Since the regulations and ownership can be written into the token, it reduces the risk of human error along the process and reduces the need for supervision. If fewer steps are needed to complete a transaction, it will generate fewer additional costs.
Cross-border trading
When trading securities across the border, the cost of the transaction will be increased because of the need to pay for legal advisory. Both parties have to make sure the trade complies with local laws. With the use of smart contracts, trading security tokens between countries could be simplified. If the appropriate regulations are written in the contract itself, any unlawful transfer will just not be possible. This could make the whole process much more cost-effective and simple.
It’s unclear how exactly the use of security tokens will evolve, but with the possible benefits they can bring to the market, it’s safe to bet they are not going away. It’s not only a faster and cheaper trading solution, but it’s also a safer one. Smart contracts can seriously reduce the risk of fraud and improve the transparency of investments.
Hina Irfan is a professional blogger, outreach expert, and writer. She is an active content creator who aims to inspire. She writes for several online magazines and on diverse topics with the focus on offering useful and actionable information to the readers. You can contact her for outreach opportunities at [email protected]
