Key Players in the Digital Securities Sphere

One of the most under-discussed aspects to the emergence of a new and exciting digital securities industry is the important role that each stakeholder needs to play for the space to grow at an organic level. In other words, each stakeholder has its own role to play in the end-to-end life cycle of concerning the creation, growth, and trading of digital securities. Notably, we believe that these stakeholders can be broken down into five key players.

This covers issuance platforms, custodians, broker-dealers, exchanges, and perhaps most importantly, those involved in compliance and regulatory matters. Here we discuss the importance of each role in more detail.

Issuance Platforms

At the very start of the digital securities life cycle is that of issuance platforms. In a nutshell, these are the platforms responsible for creating the required framework to facilitate the launch of a new tokenized security.

First and foremost, this is likely to include the design and creation of smart contracts in full preparation for the initial fundraising campaign. Although the industry is yet to agree on its preferred terminology, the fundraising campaign is most commonly referred to as a digital security offering (DSO), or security token offering (STO).

Either way, the process follows the same principles as an initial public offering (IPO) that you would find in the traditional financial markets. Put simply, the issuance platform will sit in-between investors and the organization behind the digital security itself.

In return for capital, investors will then receive proportionate digital securities, with the autonomous process executed by the previously discussed smart contracts.

Ultimately, and as we note further down, many of the roles performed by stakeholders are concurrent with one another. In this instance, issuance platforms are interlinked with those involved in the legislative side of digital securities in order to ensure that existing securities laws are incorporated into the respective smart contract and thus, to facilitate a compliant issuance and future trading.

Examples – Issuance Platforms:

Securitize, Polymath, Harbor, Newfund


In the next stage of the digital securities life cycle, an important role is played by those from within the custodian segment. Much like in the case of the traditional financial industry, custodians are responsible for safekeeping assets.

In the next stage of the digital securities life cycle, an important role is played by those from within the custodian segment. Much like in the case of the traditional financial industry, custodians are responsible for safekeeping assets.

The key difference here is that although digital securities are intangible in nature, they are still likely to require the services of a third-party custodian. The reasons for this are twofold.

Firstly, most investors do not want to or do not feel comfortable, securing the safekeeping of digital assets – especially when the underlying worth of the assets is of significant size.  

Secondly, and perhaps more importantly, some jurisdictions such as the United States dictate that authorized third party custodians must be present to enable secondary treading.

This role is arguably even more important in the digital securities arena, not least because investors are unlikely to have a firm grasp of the underlying technology and thus, safekeeping is best left to those that have expertise in this particular area of security, finance, and legal obligations.


When it comes to purchasing traditional securities in the real world, the vast majority of investor types are required to go through a third party broker-dealer.

It is important to remember that digital securities will still be accustomed to the very same regulatory safeguards and controls found within the traditional space and thus, much of the industry will have a firm requirement for a broker-dealers.

These broker-dealers will also need to go through the usual legislative channels. For example, in the United States, with the occasional exception, most broker-dealers will need to be registered and authorized by both the Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA).

Failure to do so can result in severe financial, reputational and legal consequences.


Today, the most relevant issue surrounding digital securities is whether or not there is sufficient levels of liquidity. This is what everyone is looking at. And the ones that enable liquidity are the trading platforms. Without a place for sellers and buyers to meet, there will not be liquidity.

If we look at what’s happening in the US now, the Openfinance trading platform is already live with the first digital security listings of Spice VC and Blockchain Capital.

Moreover, a few weeks ago, the most-anticipated tZero trading platform went live. All of this is big news, but it’s important to remember that this is just the beginning. It’s expected that in the early days volume is likely to be low. An increase in liquidity will not happen overnight. It will be an incremental process as more companies join and the market evolves.

Examples Players – Exchanges Platforms:

tZero, OpenFinance, Templum

Compliance and Regulation

The final stakeholder involved in the end-to-end digital securities cycle are those responsible for ensuring that compliance and regulatory obligations are met. This potentially covers two key segments of the compliance space.

Firstly, this will include firms that provide FinTech/RegTech technologies that have the capacity to streamline anti-money laundering (AML) and KYC (Know-Your-Customer) compliance. These technologies combine the potentialities of artificial intelligence, machine learning, robotic process automation, and even blockchain technology.

Secondly, there will be an important role for legal practitioners, whose services will be needed to ensure that issuance platforms and exchanges engage in a compliant issuance, and trading of digital securities.

Key Players Map

Key Players Will All Have Their Challenges

I do note that some of these segments serve the same functions as in the traditional world. But because digital securities involve integration between new decentralized technology and old legal frameworks, it creates significant challenges, and at the same time new opportunities.

Institutional players will eventually enter this space; some of them are already in it – developing capabilities or just acquiring companies with existing solutions.

Therefore, as I see it, time is limited and if you are planning to enter the market, the time is now.

If we take a quick look at the companies that have raised funds via a DSO thus far, we’ll see that tZero – the trading platform has raised the largest amount so far. Also, there is a clear trend in the number of digital securities for real estate and investment funds.

This raises some concerns for adverse selection because if this funding model isn’t be used by attractive companies, it might be seen as a final resort for raising capital. And this is a problem for crowdfunding in general. However, it is reasonable to assume that because of the significant benefits of digital securities, good companies will turn to this new funding avenue.

In summary, although challenges will continue to present themselves, the aforementioned five players are crucial to the growth of the digital securities space. In effect, each specific stakeholder has a direct relationship with one another. Whether it’s AML/KYC responsibilities from the perspective of an issuance platform, or an exchange’s obligation to utilize the services of a custodian – ultimately, the end-to-end digital securities life cycle is interconnected in its entirety.

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