The benefits of digital securities – whether it’s the ability to fractionize assets, streamline the ownership of traditional securities, or ease the process of issuing and distributing equities, are limitless. In fact, regardless of the asset class, it is reasonable to assume that the tokenization of digital securities is something that could revolutionize most sectors of the investment sphere.
In order to explore this sentiment further, here we discuss some of the main use cases that are likely to present themselves in the short-to-medium term. We’ll take a look at some of the most notable concepts already in existence, as well as other areas of the investment space that is likely to embrace the digital securities phenomenon in the near future.
Put simply, real estate is often regarded as one of the most lucrative and secure investment vehicles. Not only are investors accustomed to regular flows of passive income, but, depending on the specific housing market, long-term appreciation gains. However, entry to the real estate investment space is often limited to those with access to significant levels of cash.
As digital securities offer the ability to fractionize virtually any asset class, this will subsequently open the floodgates for lower investment allocations, as well as the capacity to diversify across a larger amount of properties.
It is also important to note that real estate is one of the most illiquid marketplaces in the investment space. This is because buying and selling are performed on a per-property basis, making it virtually impossible to trade fractional ownership. However, as digital securities can fractionize ownership with ease, this will subsequently create an entirely new trading marketplace of its own.
One such example of an organization looking to seize this particular investment space is that of BlockEstates. The company – which manages over $650 million in U.S. real estate, aims to tokenize its portfolio of holdings in the form of digital securities. BlockEstates isn’t alone in respect, with the likes of Aspen Digital, Swiss Real Coin, Slice, as well as many others, are also looking to stake a claim.
Although the use of digital securities in the traditional public stock market sector is entirely feasible, the phenomenon is potentially even more revolutionary for the private business space.
At present, private companies that require external investment are often limited to venture capital or angel investment firms. This presents a range of issues, such as a lack of liquidity, and the inability to distribute ownership across a large number of investors.
At the other end of the spectrum, this benefits investors that would otherwise not get a look-in. Imagine having the capacity to invest in companies such as Facebook, Netflix or Google at the very start of their journey?
Whether its precious metals such as gold, silver, and diamonds, energies such as oil and gas, or food supplies such as wheat and sugar, owning, storing and trading commodities is no easy feat. The vast majority of this sector is dominated by ETFs, which in most cases, is not only expensive for the everyday investor, but investors do not actually own the underlying asset.
On the contrary, commodities represented and backed in the form of digital securities offers fractionalized ownership in a secure, transparent and seamless manner. Canamex – a Canadian-based mining operation, now does just this, by offering gold and silver-backed digital security tokens.
Fine art resembles similar characteristics to that of real estate. Not only does fine art provide investors with a long-term store of value, but entry is often restricted to those with access to large amounts of cash. Furthermore, fine art is highly cumbersome to trade, and fractional ownership is virtually impossible – at least on a mass basis.
Companies such as TheArtToken are looking to embrace the space by tokenizing ownership of fine art – notably surrounding contemporary and Post War pieces. The firm almost tripped its pre-funding target of $4 million by raising just over $11 million in December 2018.
Tokenized debt is often under-discussed in the digital security space, which is surprising when one considers the sheer size of the industry. In fact, with some estimates putting the global debt figure at $247 trillion, with more than $100 billion traded in the open marketplace on a daily basis, the potentialities for digital securities are huge.
Access to certain segments of the debt industry – notably government debt and bonds, is often difficult to access for non-institutional investors. However, the potentialities of blockchain technology means that government debt can now be fractionized and issued on a distributive basis.
Regardless of where we are based, energy is a fundamental necessity for all. Although conventional third-party energy suppliers still monopolize the consumer marketplace, renewable energies such as solar are now becoming more and more accessible.
At present, those who generate surplus energy levels are forced to re-sell the energy back to centralized companies – usually for an unfavorable rate. But what if these energy supplies could be owned in the form of digital security?
In-line with other emerging technologies such as the internet-of-things (IoT), digital securities will allow consumers to trade energy supplies on the open marketplace.
An example of a company looking to tackle this sector is that of XiWatt. The firm is looking to bridge the gap between consumers, suppliers and renewable energy sources, subsequently allowing end-users to trade energy assets on the blockchain protocol.
Although somewhat outside-the-box, this particular potentiality further illustrates just how limitless the digital securities space really is. For example, imagine being able to invest in an up-and-coming soccer star in the open marketplace? These digital securities could be issued over the internet with ease, and bought, sold and traded in a seamless manner.
Digital securities in the sports sector could also apply to teams. If, for example, a basketball team needed to raise funds to finance a new stadium, instead of approaching traditional lending sources, the team could instead issue and distribute digital securities to fans.
With the global agricultural industry estimated to be worth in the region of $2.4 trillion, it comes as no surprise that the digital securities space has the potential to benefit multiple stakeholders. One such company that is looking to take the bull-by-the-horn is TE-Food.
The Germany-based startup – who provide farm-to-end-user traceability via the blockchain ecosystem, claims to facilitate 400,000 transactions per day, across more than 6,000 business clients.
From a supply-supply perspective, digital securities can alleviate a paper-heavy system that hinders efficiency in the agricultural space, as well as provide real-time transparency.
As an investment vehicle, agricultural companies can distribute digital securities to represent the goods they grow, subsequently creating a highly liquid, borderless and seamless trading space.
In this sense, the above example would see the respective blockchain asset operate in a hybrid manner. In other words, such a token could represent both a security and a utility.
One of the first industries to utilize the benefits of digital securities was that of the investment fund space. In fact, organizations such as SPiCE, Blockchain Capital, 22X Fund and CityBlock now provide everyday investors with a seamless channel to inject capital into a fully managed investment fund.
Interestingly, SPiCE became the first fully tokenized VC fund to recognize the huge potential for tokenization, subsequently starting the process back in 2017. As security tokens were yet to grace the blockchain space with its presence, SPiCE spearheaded much the technological, legal and regulatory framework that many digital security startups mirror today.
Digital Securities are Limitless
Although we have cherry-picked some notable use-cases of digital securities, it is important to note that the aforementioned list is anything but exhaustive. On the contrary, digital securities can be issued, distributed and owned against virtually any asset class that yields value.
Whether its equities, real estate, commodities, art or sports, digital securities essentially bridge the gap between investors and issuers (and arguably regulators), meaning that the potentialities are huge.
While it is true that we are still at the very beginning of the digital securities phenomenon, it is likely that the space will in some way, shape or form disrupt a significant number of industry sectors in the short-to-medium term.