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A Summary of

The security token thesis

Stephen McKeon
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Security Tokens

  • Any blockchain-based representation of value subject to regulation under security laws
    • Includes tokens representing traditional assets such as equity, debt, derivatives, and real estate as well as pre-launch utility tokens deemed securities by the SEC

Features that will become prominent in security tokens in upcoming years

  • 24/7 Markets
    • Stock markets are very U.S. centered and have limited time frames, while security token exchanges will likely be open at all hours to accommodate time zones and accelerate integration of global markets
  • Fractional Ownership 
    • As more assets are fractionalized, we can achieve more optimal asset allocation at the retail level
    • Ability to construct a true “market portfolio”
  • Rapid settlement 
    • Blockchain has the potential to increase settlement speed for securities, but it’s more complicated than a comparison to cryptocurrencies
  • Cost reduction
    • Several parts of the issuance process will eventually be automated, which will reduce costs
  • Liquidity and Market Depth
    • Tokenized funds allow the fund managers to invest in illiquid assets without fear of redemptions, while fund investors can access liquidity in the secondary market
  • Automated Compliance
    • By relaxing frictions to trade, security tokens will be able to trade anywhere, including decentralized exchanges
  • Asset Interoperability
    • Assets to be able to reference each other contractually and interact in an automated way; makes distributions easy
    • Global pooled liquidity for all asset classes through a single interface
  • Design Space Expansion
    • Security tokens allow us to build in contractual features that have previously been infeasible to execute such as ownership characteristics, access rights, unbundling value, etc
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