ST (Security Token) - the financial practice of securities tokenization

ST——Security Token, the recent popularity in the circle has formed a strong and sharp contrast with the current capital market that is facing a cold winter, and the digital currency market that is wailing everywhere. Many people in the industry regard the issuance of ST, that is, STO (Security Token Offering) as a legal ICO, and some people think that STO is the third wave of Fintech.

Obviously, at a time when the global capital market is in a period of depression, a brand new thing is needed to cheer up and comfort practitioners in the industry. However, if you only regard STO as a legitimate ICO or a certain wave of Fintech, it is not wrong, but it is somewhat underestimated.

In my opinion, Security Token may be greater. Its advent is to some extent a global financial practice of securities Tokenization. The Token generated by ST through blockchain technology endows securities with a new external form, and will thus Give securities a part of a new connotation. Perhaps, in the future, ST will subvert the existing securities system and become an important part of future securities, or directly transform into super securities.

1. If you look down from the wellhead, you can only see the bottom of the well; but if you look up from the wellhead, you can see the whole sky.

Looking at ST from the perspective of the blockchain, it is just a security pass, an application of the blockchain entering the 3.0 stage; but if you look at ST from the perspective of securities, it means that traditional securities rely on The token, a blockchain product, has transformed into future securities, giving asset securitization a new carrier.

We all know that securities have existed for hundreds of years. In 1603, when the Dutch United East India Company issued shares for financing, perhaps they did not expect that they created a great invention in the history of human finance. In the following hundreds of years, the connotation and extension of securities continued to expand, and the functions they carried became more and more extensive.

We know that securities are essentially a civil right, and this right has property attributes. The securitization of rights is also a legal phenomenon, that is, the way and process of exercising rights by obligees are expressed in the form of securities. This phenomenon represents the symbolization of investment assets, and it is also a sign and inevitable result of social development and credit development.

Because of the particularity of the essence of securities, it must rely on a certain form of expression. Initially, VOC, as the first joint stock company, issued "shares" for financing. People come to the office, write down in their notebooks that they have lent money, and the company promises to pay dividends on these "stocks." This is the earliest basic way to recognize securities rights—paper, which expresses specific rights on special paper slips by means of words or graphics.

With the development of economy and science and technology, relying on electronic technology and information network, securities have completed a complete transformation from "paper-based" to "paperless". We found that investors no longer own any Securities in the form of tangible objects, the securities they own will be recorded in an intangible form in the account. Under such subversive development and conversion, modern securities come to us with huge differences from traditional securities concepts.

However, after hundreds of years of development, the securities market has also encountered a certain degree of development limitations. In the process of asset securitization, the current assets that can be securitized can no longer meet the needs of modern people. Some commodities and intangible assets (such as copyrights, equity, wealth management products, creditor’s rights), etc., are very difficult to obtain in the existing securities system. It is difficult to achieve securitization and enter the field of circulation. In the trading process, it is subject to many restrictions, such as limited trading time, delayed delivery and clearing time, reduced liquidity due to regulatory complexity, etc. In addition, there are many regulatory combinations and management transactions in each dimension. Multiple regulators have severely reduced the circulation of securities.

In other words, the current securities system can no longer fully meet people's demand for securities and expectations for asset securitization. In this case, the Security Token, which emerged as the times require, gives securities the opportunity to further evolve.

2. Coca-Cola was originally invented as a medicine for treating headaches, but now it is the originator of carbonated drinks and is popular all over the world.

The blockchain, known as the fourth industrial revolution, has recently become an emerging industry that has attracted worldwide attention, but the implementation of scenario applications has always plagued industry practitioners, capital markets, and regulatory agencies. In fact, the emergence of ST not only solves the application problem of blockchain scenarios, but also provides a new way out for the current securities. On the one hand, Token, which is a natural product of the blockchain, provides a new carrier for current securities; on the other hand, distributed storage, openness, transparency, and non-tamperable features of the blockchain are a new form of securities such as ST. Infused with a sharp and modern connotation.

ST, which was born in 2017, was only a blockchain Token product that was closely watched by the SEC in the United States—the United States Securities and Exchange Commission. It also focused on whether it should be exempted or included in the securities system. At that time, ST Most of the people who pay attention are people in the currency circle and some Wall Street capital tycoons who are curious about the blockchain.

If so, then ST is just the bottom of the well seen from the mouth of the well, or Coca-Cola when it was a pharmacy. However, the development of science and technology is not controlled by people's subjective wishes. When practitioners continue to deduce the use of ST and improve its model, they find that it naturally matches securities.

The characteristics of the blockchain - openness and transparency, distributed storage, non-tampering, etc., make ST perfectly able to help the current securities system to further evolve.

First of all, it can use Token as the carrier and rely on the blockchain to securitize any asset (tangible assets + intangible assets). Relevant data show that the value of global stock assets is about 70 trillion U.S. dollars, debt is about 100 trillion U.S. dollars, and real estate is about 230 trillion U.S. dollars (of which residential buildings are about 180 trillion U.S. dollars and commercial U.S. dollars are 32 trillion U.S. dollars), but more assets are not yet available. Unsecuritized, such as copyrights, artworks, castles, luxury houses, etc., the existing securities system obviously cannot securitize them, and ST has no problem.

Second, it can effectively solve the circulation problem. On the one hand, tokenization can make the whole transaction more convenient, cross-border circulation is not a problem at all, 7*24 hours, transaction is liquidation, T+0, etc. are not available in the existing securities system. On the other hand, the properties of the blockchain can cut assets into tiny particles, which is also not available in existing securities. In the words of Harbor CEO Josh Stein, “locking in capital, not investors,” greatly lowers the investment threshold. In the future, even rare treasures like the Mona Lisa, once securitized, everyone can become a potential shareholder of the painting, and can effectively circulate their shares at any time.

Again, it can make regulation relatively easy. Hayek's "Road to Serfdom" has a classic saying,"If a person does not need to obey anyone but the law, then he is free."The protocol-level automated management of blockchain properties means that code is law to some extent. Different countries have different attitudes towards the blockchain, which does not affect ST's own constraints.

3. A butterfly in the tropical rainforest of the Amazon River Basin in South America, occasionally flapping its wings a few times, can cause a tornado in Texas two weeks later.

When the Token of the blockchain empowers securities, it will undoubtedly open up a huge space for financial innovation. Just as Facebook, YouTube, and WeChat were derived from data exchange protocols many years ago, which completely subverted our way of life, the programmable supervision and trading logic provided by Security Token will open up a new path for the development of securities, and this This path may create a future super securities system.

A phenomenon that may support my point of view is that ST participants have gradually passed from the earliest currency circles to mainstream blockchain practitioners to traditional capital market giants.

Let’s take a look, those companies that started STO were basically unknown, until September 11th, the giant Ethereum in the blockchain field came in. Developer Stephane Gosselin submitted a new proposal on GitHub, announcing a new security Token - "ERC1400". The new standard mainly combines the fungible of Token with securities-related business scenarios and designed A common set of interfaces. The new Token proposal focuses on regulatory functions, with the purpose of facilitating users to issue securities on the Ethereum network in a legal and compliant manner.

Next in line is Nasdaq, the giant U.S. exchange operator. Nasdaq is reportedly planning a new platform dedicated to tokenized securities, a move that would allow projects to offer STOs in a regulated environment to comply with U.S. laws. Nasdaq is in talks with blockchain firm Symbiont to create its own platform that would enable tokenized securities to be listed and traded, the report said. Although the authenticity of the news remains to be verified, Nasdaq's attitude towards STO has always been quite ambiguous, and its heart of embrace and inclusion is clearly revealed.

It is conceivable that after the intervention of traditional capital, the entire ecology of ST will be greatly changed. What will happen to ST, which integrates innovative blockchain companies, giants in the blockchain field, and traditional securities giants. It is particularly worth noting that, unlike the traditional capital market, ST is inherently equipped with the internationalization characteristics of the blockchain. It is oriented to the entire global capital market, so the talents, funds, and creativity it gathers will be far from those in the past single system. The securities system is comparable, and it is conceivable that a super securities system has already met the conditions for creation.

Of course, driven by huge interests, governments of various countries also have different attitudes, so regulatory policies are also quite different. So far, no country has relaxed the securities laws related to the issuance of securities tokens; but we should also see that almost no country is willing to miss this opportunity to update the securities system. In fact, thinking about it the other way around, the difficult delivery of regulatory policies in various countries is also a prudence necessary for stakeholders.

Throughout history, technological development has always promoted the economy and forced policies. I believe that ST represents the securities of the future, or at least is an important part of the future securities system. Because, only by realizing the legalization of ST product financing, can we benchmark real assets and develop a larger potential market, and this is a technological innovation that benefits all mankind, and there is no reason to be stifled.

(to be continued)

About the author: Sun Jiantao, CEO of Digital China, serial entrepreneur, founder of Goopal Group, angel investor; deeply involved in the payment industry, has successively founded and participated in brands such as Times Jiecheng, China Pay, Qiandaibao, and Zhangzhong Technology.