Mapping out the Security Token Ecosystem

The Block’s Security Token Ecosystem map was reviewed by Vertalo and a handful of industry experts for accuracy. The accompanying article is solely by The Block.

As security tokens and tokenized assets gain steam in the crypto ecosystem, clear infrastructure begins to form. As we previously covered in our Block by Block series on security tokens, these new instruments aim to tokenize the ownership of all assets, whether they are public and private equities, real estate, or precious metals — even things like art. Investors are clearly taking notice as they pump millions of dollars into projects that support the issuance, exchange, and custody of security tokens.

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We have categorized the security ecosystem into six sub-categories: (1) Issuance (2) Broker-Dealers  (3) Custody & Trust  (4) Legal (5) Compliance and (6) Trading

Issuance platforms enable issuers to tokenize and issue their assets, making them available for sale. These platforms offer tokenization features for a wide range of assets including real estate, debt, equity, and art. Tokenized assets can operate on a number of different blockchains including Ethereum, Bitcoin, and Ravencoin. All tokenized assets are pegged to an underlying asset, whether that is something like the Empire State Building or Van Gogh’s “Irises.” If the market changes its perception of the price of the asset, the tokens should move in value as well.

Broker-dealers are buyers, sellers, and distributors of security tokens. As dealers, they initiate transactions on behalf of brokerage firms. As brokers, they buy and sell securities on behalf of their clients. Broker-dealers, essentially, help provide liquidity to the market for a security token.

Custody & Trust providers help hold tokenized assets — on behalf of clients — to protect them against theft or loss. These providers offer their services to multiple players in the security-token ecosystem, including investors, broker-dealers, and trading platforms.

Legal firms work with security token issuers to stay compliant with securities laws. The core regulations for U.S.-based security token offerings date back as far as the Securities Act of 1933. The big three: Regulation D,Regulation S, and Regulation A+ — a product of the 2015 JOBS Act. However, depending on the type of security token an issuer is offering, there are a variety of additional regulations that can apply.

Compliance providers offer services for security token issuers to stay consistent with current regulations. These include investor verification, know-your-customer rules, cap-table management, and fraud management.

Trading platforms enable traders to buy and sell security tokens. These platforms can service both primary and secondary markets. Primary-market trading platforms can also offer issuance services, operating as hybrid issuance and trading platforms.

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Mapping out the Security Token Ecosystem written by Steven Zheng @ November 15, 2018 Steven Zheng

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