Security Tokens Mark the Tipping Point for Global Capital Markets

Here’s my prediction. Sometime in the indeterminately distant future, someone will publish a book. The work, a thick and weighty volume, will be titled: “A History of Capitalism”. It will chart the evolution of global debt and equity markets: its humble origins in the first offering of shares to the public, when the Dutch East India Company effectively conducted the first IPO in 1602, to the tulip bulb craze that resulted in the first market crash. It will cover Adam Smith, the founding father of free trade who laid the intellectual framework that explained free markets and coined the phrase “the invisible hand” which explains how self-interest is the guiding force of an economy.

It will journey through the Industrial Revolution, the Roaring Twenties, the Great Depression, the forming of monopolies, oligarchs and government intervention. It will regretfully recall when Nixon decided the U.S. Dollar should drop the gold standard, and certainly lament when the hundred-year-old modern banking system plagued by fractional reserve lending failed the world in 2008, as property prices plunged shortly after the leading financial institutions reaped enormous profits by betting against their underlying debt.

The virus would eventually lead to economic equality and heightened living standards for millions

Though all the ups and downs of this obviously flawed system may become an exhausting read, it will depict the light at the end of the tunnel when a digital virus begins to spread. The virus would eventually lead to economic equality and heightened living standards for millions who previously faced slim chances in the pursuit of these basic liberties.

Of course, I am referring to decentralized, cryptographically trustless systems like Bitcoin and other open-source blockchains that changed the lives of those who saw, not just a revolutionary breakthrough in cryptography and computer science, but a paradigm shift in the use case for the internet. Until then, the internet was a highly efficient place to share information, whereas Bitcoin proved it can also be an efficient means to transfer value in the form of scarce digital assets.

The rest of the book is yet to be written but the early indicators are beginning to show. Individuals are now taking money from their local productivity and spreading it around the globe effortlessly to invest in the networks they speculate will have more value in the future. Some are predicting a world where money is circumscribed not by borders, but by industry. It has become clear that as Hal Finney phrased it, “Blockchain is not a bubble; Blockchain is the pin”.

In the last couple years, a new trend has formed in the emergence of easily tradable, scarce digital assets that contain equity of a business, asset or venture. A share in the project, with voting rights, dividend payouts and 24/7 liquidity for its holders. Some of the companies leading the way are:

Once these platforms launch in their entirety in the coming months, we will have reached a turning point in the history of global commerce. Once every company can securitize their equity with a liquid token, several paradigm shifting advantages become apparent:

  • Company employees, now paid with cash and liquid shares, are incentivized to perform at their optimum knowing their efforts will have a direct effect on their own wealth, not just that of the company’s partners. This wealth appreciation can be realized immediately due to the liquid nature of 24/7 markets (tZero Platform plans to operate around the clock with zero settlement time)
  • Eventually a set of universally accepted laws cuts red tape and speeds the process of growth and realization of self determination for those looking to raise capital and invest in a broad array of ventures, regardless of size or geographic location
  • Monopolies erode as the barrier to entry of business is lowered

And here’s the kicker. While the network effect of cryptocurrencies is viewed as exclusive to utility tokens, the truth is that it extends to securities, arguably becoming one of their most valuable features. Currently, public companies hold annual shareholder meetings where investors are invited to hear out the executive team and pose hard-hitting questions to management. It makes for a good show, especially if the company has endured a rough few quarters and the investors are looking for a forum to vent, but they rarely achieve much beyond that.

What was previously a spectator sport, investing becomes filled with active participants all looking to pitch in to increase the value of their holdings.

Companies looking to run STO’s, on the other hand, are expected to set up an actively managed Telegram or Discord group with an open invite to all potential investors and participate in regular AMA’s. With the help of an “Investor Relations Manager”, investors maintain an ongoing and transparent dialogue with management. What was previously a spectator sport, investing becomes filled with active participants all looking to pitch in to increase the value of their holdings. Perhaps an Australian investor who owns tokens in a Canadian based mesh networking company would like to introduce the executives to a family friend who recently invented a mesh antenna that can rapidly improve the company’s service and speed up the roadmap. She reaches out on the Telegram group with her intents, and within 24 hours is setting up a Skype call between her friend and the company’s CTO. As distributed networks extend to invaluable human resources the global degree of separation is reduced, therefore enabling founders to accomplish their goals faster and more efficiently.

This dynamic new technology makes the world a smaller place and enables millions to realize their dreams. Whether it’s a founder in an emerging economy with an entrepreneurial spirit, or an investor looking to start his own venture capital firm, these goals are getting closer by the week, painting the picture of a serene future where ideas and their actualization are plenty and those who believed in them from the very beginning are exposed to as much upside as Peter Thiel when he invested $500,000 in Facebook, almost a decade before their IPO.


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It’s Not the SEC’s Job to Change 90 Years of Securities Regulations

Last week, SEC Chairman Jay Clayton declared, in no uncertain terms, that while he does not consider cryptocurrencies like bitcoin to be securities he is not going to adapt existing regulations to accommodate the rise of “utility tokens” or tokens claiming not to be traditional securities. For several months, the blockchain industry has yearned for formal guidance from the SEC regarding how it approaches assets like utility tokens amidst the ICO boom that has gripped the market for the better part of the past year and a half. Yet as Chairman Clayton noted during his interview last week, he’s not going to get much clearer than this. As long as Chairman Clayton is at the SEC, they are going to enforce securities regulations according to the same regulations that have guided them for the better part of the past 90 years. And that’s exactly the stance they should take.

A Fair Interpretation

As a company operating in the blockchain industry, it’s easy for us to react to Chairman Clayton’s line in the sand as an affront to innovation. Based on prior interviews and public statements, we know that Chairman Clayton is not the biggest fan of cryptocurrencies in general. But that doesn’t mean he hasn’t been fair and consistent in his enforcement and interpretation of existing securities regulations. The SEC has been quite clear for awhile now that utility tokens, and other digital assets which can be reasonably interpreted as securities according to the Howey Test, will be treated like traditional securities and subject to the same enforcement.

Individuals and Institutions Leading Change

As CoinCenter Director of Research Peter Van Valkenburgh highlighted on Twitter this week, it’s not Chairman Clayton’s job to change the regulatory landscape! If the blockchain industry wants to see existing regulations adapted to better accommodate the unique features of their projects, it needs to direct its energies towards the courts and legislators who create the laws and precedents in the first place. The SEC is an enforcement agency, and in this role it will always take its regulatory lead from those creating the laws of the land in the first place. If the industry wants to see regulatory change that it feels will treat blockchain-based projects more fairly, it needs to start thinking more deeply about the individuals and institutions that are going to lead that change- rather than expecting Chairman Clayton to be their regulatory saviour.

A Reason To Believe That ICOs Never Really Left

This past week,’s EOS Initial Coin Offering (ICO) has been all the rage. And why shouldn’t it be? With more than $4 billion raised over the course of its year-long timeline, the EOS coin ICO not only more than doubles its nearest competitor (Telegram recently raised $1.7bn in its own record-breaking ICO) but according to The Wall Street Journal it’s “larger than all but one or two of the world’s initial public offerings on stock exchanges so far in 2018.” The EOS coin price even shot up to $15.63 a coin after the ICO closed, before settling in the $14 range this week.

Despite cryptocurrency prices more than halving since bitcoin nearly hit $20,000 in December 2017, it’s clear that investors are not holding back on their excitement for ICO projects in 2018.  In fact, Bloomberg this past week reported on the 2018 ICO market already exceeding $9bn in 2018- more than double 2017’s total of less than $3bn.

What the EOS ICO Tells Us About ICO Demand

Not all ICOs look alike, as evidenced by the different strategies both and Telegram employed (the former’s EOS coins are already trading on exchanges, while Telegram was only available to private investors). And with regulators looking to clamp down on misleading or outright fraudulent projects, it remains to be seen if this momentum will continue through the rest of the year or if there will be a chilling effect on investor enthusiasm.

However, despite many of the challenges and questions facing even the most high-profile ICOs, investor enthusiasm to-date has been undeterred. Even’s EOS ICO has faced numerous questions in recent weeks, including potential network-crippling security vulnerabilities and pointed criticisms about EOS’ proposed governance model from none other than Ethereum creator Vitalik Buterin himself. But this has done little to dampen interest in the project, as investors continue to believe in the potential of EOS to process nearly one million transactions per second and solve the scalability challenges blockchain technology has yet to overcome.

A Confident Blockchain Future

If the EOS coin ICO is any indication, it’s that investors on the whole continue to believe in the potential of blockchain technology to revolutionize daily life. And with that belief, you can bet your bottom-dollar that ICOs will continue to be a primary fundraising vehicle for the blockchain industry.