Fundraising on Blockchain

The Narrative

• 2019 --> Security Tokens Boom
   
• by 2025 about 10% of global GDP will be tokenized (predicted by WEF)
   
• potential market: $250 trillion worth of private companies or $220 trillion of real estate.
   
• successful STO startups will threat traditional financial institutions within a few years amid exponential growth of security token ecosystem
   
• Access to retail investors?

• 24/7 trading
• Fractional ownership
• Operation cost reduction
• Enhanced trading efficiency 

STO Benefits (?)

• Liquidity Premium
• Rapid settlement
• Compliance automation
• Better access for global capital market 

• Demand is probably exaggerated

  • ​​​most people don’t even buy stock of their love brands
    --> why stocks in small private companies they have never heard of?​​
     

• Liquidity
   

 

Challenges - Demand & Liquidity

“Tokenizing securities is not a magic recipe for liquidity. Tokens can be equally illiquid as their legacy digital or paper certificates. Tokens do not beget liquidity. Technology does not generate liquidity. Buyers and sellers create liquidity.” 

— Matthew Finestone

• STOs do not beget liquidity

  • Liquidity also requires an infrastructure of liquidity providers.
  • In private markets, especially small-cap issuers, liquidity is very difficult to create.
     

• Exchanges

  • There is a handful, but they have little to no volume which defeats the purpose of having them in the first place.
     
• Demand is probably exaggerated
  • most people don’t even buy stock of their love brands
    --> why stocks in small private companies they have never heard of?​​​

 

Facts to consider

IPOs

USD 188 B

Equity Crowdfunding

USD 822 M

source: The blockchain review

• Technology stack? 
• What about layer 2 --> different privacy properties
• Confidentiality and accountability requirements --> what if these rules change?
• Private keys management?

Tech Challenges

ERC20 minimum requirements functions

totalSupply
Get the total token supply

balanceOf
Get the token balance of an address

transfer
Send tokens to another address

approve 
Give another address permission to spend a certain allowance of tokens

allowance
Check the allowance that one address has for another

transferFrom
Spend the allowance that one address has for another

 

• Pausing tranasferability
• Ownership model
• Vesting / Time locking
• Upgrading / Migrating
• Cloning
• Restricted Ownership
  • protocols like R-Token extend ERC20 transfer only to whitelisted address registry
• Delegated Transfers
  • Gas fees incurred by token transfers can be inconvenient for end-users
  • Tokens can allow transfers to be submitted by a 3rd party, who pays the gas and collects a token fee off the user

ERC20 possible extensions

“We believe for securities issuance, you need a private, controlled blockchain … [you] need control of the full lifecycle.”

 

• Daily volumes: 9,000 - 35,000 units (out of 26 M)
• Few hundred investors
• TZROP price down 8 $ --> 3 $

• $404 million deal with GSR Capital is off --> $100 million
  
   

• Significant delays

• 1st ETO --> 3M+

• 1st dividend payout

• 8 other companies in the pipeline

 

tZERO & Neufund

 

“We always overestimate what we can accomplish in one year and underestimate what can be accomplished in 10 years.”

- Bill Gates

Prerequsities

Clear regulations

International Standards

Legit Infrastructure

Participation of traditional fin institutions

Key messages

• Yep, STOs will be faster, cheaper and more efficient than traditional funding approaches
   
• But will remain complex to engineer technically
   
• The legal process as a legitimate wrap around the newly engineered instrument is key.
   
• We are still at infancy stage
   
•  Around 2021 we will be able to figure out the true liquidity (and volumes) of the security token market.