“In dollars raised, the next five years will make the first wave of ICOs look like kids stuff.” Tapscott says the STO will not just be a connection to the blockchain representing some off-chain asset, but instead be a native digital asset that can be traded peer-to-peer without custodians, clearinghouses, brokers, exchanges, and banks. “ICOs have already upended venture capital [and] Wall Street could be next […] These offspring of ICOs, Security Token Offerings (STOs), will become ubiquitous in venture capital and financial services more generally.”
In a very brief recent period, Initial Coin Offerings (ICOs) have introduced the financial world to a new method of distributing capital using blockchain technology and asset tokenization. This new method has introduced more than 4,000 projects to investors worldwide and has attracted more than $13 billion in investment.1 The time has now come to combine the practical benefits of this new technology with the rich traditions of securitized transactions that have served as the infrastructure for the wealth of nations over the past 600 years.
PrefLogic is developing a comprehensive financing solution for entrepreneurs and businesses seeking to combine conventional equity relationships withthe efficiencies offered by blockchain technology. Our STO Wizard is now capable of auto-building Security Tokens based on our proprietary SERC Token framework. When our market launch is achieved in the first quarter of 2019, our STO Token Gateway will enable a business of any size to custom-build a Security Token, implement a Security Token Offering (STO), and perform the investor relations services that customarily follow on a securities offering.
Since our launch will be congruent with the timelines of the first mainstream Security Token exchanges, which will be released next year by companies such as Coinbase and tZero, our clients will be able to offer their investors the opportunity for resale marketability that previously could be achieved only with the support of the investment banking community. The start-up, private, or microcap issuer whose market for financing was previously limited to friends, family, and the local bank will now utilize our STO Wizard to create a marketable security that can be offered to a growing worldwide community of blockchain investors.
A Security Token is a digital asset whose value is tied to real-world economic drivers, similar to a traditional debt or equity security. With the introduction of the STO, entrepreneurs with many levels of sophistication and even modest networks of business relationships will be able to engage in new business opportunities through the tokenization of hard assets such as real estate, art, intellectual property, and high-end collectibles, as well as financial assets such as corporate equity, profit participations, debt relationships, etc. Security Tokens can be designed with almost infinite flexibility to represent fractionalized interests in such assets.
The development of the STO, along with the emergence of Security Token exchanges, will provide a broad range of businesses the kind of access to a global pool of investors that today is reserved for a restricted club of large cap equities, investment companies, and hedge funds. At the same time, processing the investment transactions through encrypted communications on the blockchain will give even the smallest issuer a level of enhanced security and transparency that is not available today to even that restricted club.