226

Blockchain Technology

(STO) violates the restrictions related to the exemptions in question and begins to act

as a public security (see Table 13.1).

But an advantage of an STO over an IPO is that the security token can behave

like a programmable share and offers a set of functionalities and attributes that a

traditional public IPO share does not have. For instance, an STO can be created into

an investment product that is better than traditional stocks (and bonds) by way of

rewarding investors both from the forefront, through a risk-sharing model to share

profit (and losses), and from the back, through dividend payments. STO companies

that can offer profits from the front and back of the business simultaneously have the

potential to become the new darlings of profit-driven investors.

13.5  TOKENIZATION OF ASSETS OF VALUE

Tokenization is likely to become one of the most important and influential trends in

the crypto space in the coming years. As mentioned earlier, tokens are a represen­

tation for “something” on the blockchain, which does not necessarily have to be a

currency – like Bitcoin – but could also be a wide range of other types of tangible or

intangible assets.

By tokenizing private securities, we can potentially map out and transform illiq­

uid costly assets to highly liquid assets with higher cost-effectiveness. Given that

the asset categories within the private securities market are in the trillions of dollars

(where the illiquidity discount can be as high as 20–30%), the tokenization of private

securities has the potential to unlock billions of dollars in value.

The basic idea of tokenization is the use of smart contracts on a blockchain to

create a virtual representation of a certain asset in the form of a token. Depending

on the type of asset to be tokenized, different tokens and token standards have

been developed for the tokenization process, and different challenges and

FIGURE 13.3  Fundamental differences between ICOs and STOs.