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December 17, 2018

Tokenizing Securities: is it Worth it?





Tokenizing assets has become a hot topic in recent years. There is a wide range of things that can be tokenized as per the current time. Tokenization basically refers to the process of converting real world assets to digital assets. When a real-world security asset is turned into a digital one, the result becomes a tokenized security. Such securities are highly desired since they follow regulations and they provide more options for investors. But is tokenizing securities worth it? Let us discuss in a couple of points.



Liquidity and Cost Issues

As a general rule, private securities tend to have higher costs than public securities. This is because of the many issues surrounding regulation. Private securities also have to be intercepted by many intermediaries before they are actually in the hands of traders and investors. These issues result in high fees and other associated costs. The legal, business and structural nature of the market means that private securities are limited to lower liquidity levels. Investors are therefore very wary about investing in such securities.

On the other side of the divide, tokenized securities have a huge advantage. These digital securities benefit from an established digital infrastructure that clearly lays out the rules for investing, creation process, issuance and other issues. The interference by third-parties is thus non-existent in this market. The overall cost transferred to investors is minimal and most of the functions in the market are electronic. Automation and the oversight of compliance functions are done electronically and this makes tokenized securities very easy items of trade. Investors are particularly attracted by the ease that the security tokens bring to secondary investing functions. Because of their low prices associated with them, they pull in investors without much effort.

 

Vital Issues to Consider


Just like other technologies in the digital world, the blockchain still faces some serious threats. The technology is still young and it has been proven that some entities are able to manipulate the system at times. Other than that, issues of compliance are still a challenge. The removal of financial intermediaries in the industry has also left huge gaps that entities in the blockchain world are still trying to figure out. The technology necessary to drive the security tokens to their full potential is also still in development. Anyone who is looking to invest in this market, therefore, needs to be fully aware of the issues that are still prevalent. There is a lot of potentials though as the technologies currently in development promise of great things in the near future.
 

Final Remarks

The digital technology driving security tokens might be young but it cannot be overlooked. The investment opportunities that exist in the market are immense and they can only become bigger. The speed, liquidity, and freedom that comes with tokenized securities make a great case for the technology. Even though issues of regulation are still murky, the various regulatory regimes have been positive about the industry. Tokenization of assets is not particularly enough to add value to assets, but the flexibility that it adds to them is what most investors are interested in.

Images by: Pixaby

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