Security Tokens and IPO

It’s looking like security tokens can disrupt the traditional banking and finance industry–especially when it comes to trading securities like shares of stock. Security tokens represent digital claims to ownership (shares) of a company that are typically stored on a blockchain.

It’s looking like security tokens can disrupt the traditional banking and finance industry–especially when it comes to trading securities like shares of stock. Security tokens represent digital claims to ownership (shares) of a company that are typically stored on a blockchain. Owning a security token is similar to holding shares of stock, except security tokens offer numerous advantages over the traditional methods banks and financial institutions use to sell, distribute, and trade shares of stock.

The current processes banks and financial institutions use to sell and trade stock are inefficient, slow, and not transparent to the average investor. From the time a company starts the IPO process to the time the IPO sale begins it usually takes about 6-9 months, from the time a trade is made to the time it is actually settled in a companies order book it typically takes 2-3 days, and all of these events take place within a black box where retail investors cannot actually look themselves to see where they stand in terms of the trade process, but instead, are forced to trust their broker or clearinghouse.

Fortunately, the research and development of blockchain technologies have revealed that blockchain technologies and cryptocurrencies can optimize the way securities are traded and settled. In the future, it would not be surprising if security tokens offerings and security token trading become the norm in the world of banking and finance.

To begin with, it is several times faster to raise investment capital through a security token offering than it is via an IPO. Stocks are traditionally introduced into the market through the IPO process, and afterward, the public is free to invest in that stock. But if a company opted to digitize the shares of stock they are willing to sell, and put those digitized shares (tokens) on a blockchain–a cryptographically secured ledger that is typically decentralized, and usually allows for peer-to-peer transactions to take place–then that company could bypass the IPO and underwriting process, and offer their shares directly to investors, cutting out the intermediary.

Because a security token offering takes place on a blockchain, there will be transparency and all investors will be able to see where the company stands in terms of funds raised, shares distributed, and which blockchain addresses bought/sold how many shares of stock. In addition, because blockchain technologies usually allow peer-to-peer transactions to take place, a company can sell stock to an investor and that trade will be settled nearly instantaneously when it is recorded on the blockchain.

 

 

 

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