An Early Platform for Security Token Trading
Security tokens are an exciting future of the alternative asset market. They allow for fractionalized real estate ownership, micro-placements in private equity, and instantaneous cross-border asset transfers. Security tokens provide for a structured clearing and settlement process, with less reliance on centralized repositories.
The industry is still in its fledgling stage, at roughly two years old. However, it has already attracted the likes of Facebook, JP Morgan, IBM, and Overstock.com. Even a few countries have issued sovereign security tokens, including Tunisia’s eDinar and Venezuela’s oil-backed Petro.
Exchanges catering specifically to security tokens are also under development, with a few projects vying for first-mover advantage. Notably, on January 15, 2019, Belarus-based Currency.com announced the launch of one of the first trading platforms specifically built for tokenized securities. According to the Currency.com team, the platform will allow investors to trade and invest in real-world financial instruments through the use of blockchain technologies.
As one of the first and most closely regulated security token exchanges, a closer look would be worthwhile for most industry participants.
Background Information
VP Capital and Larnabel Ventures, two technology-focused investment organizations, established Currency.com’s token trading platform.
The platform was in beta mode since January. It launched formally to the public on May 3, 2019. Claiming to be the world’s first exchange dedicated to security tokens, traders can now use either Bitcoin or Ethereum to invest in tokenized financial assets. The company has also launched an official app for both iOS and Android, as well as adding new features like loss harvesting and 50% margin close-outs.
Currency.com works side-by-side with its sister organization, Capital.com, which is regulated by the Cyprus Securities and Exchange Commission (CySEC) as well as the U.K. Financial Conduct Authority (FCA). In order to access specific equities, commodities or indices, users can now use a tokenized version of a contract.
Currency.com is licensed by the High Technology Park in Belarus, under the newly adopted Decree Number 8, which provides legal status for operations associated with keeping, mining, buying, selling, or distributing cryptocurrencies. The decree also governs the exchange of cryptocurrencies, such as exchange services, mining operations, digital tokens and initial coin offerings.
Currency.com also implements Anti-Money Laundering (AML) and Know Your Customer (KYC) laws, providing a customer protection framework adhering to Europe’s General Data Protection Regulations (GDPR). The company has also partnered with blockchain intelligence services such as Confirm, ChainAnalysis, and Elliptic for the verification of blockchain transactions.
Currency.com’s exchange lists tokenized products which track the underlying market price of several conventional financial instruments. Its feature set illustrates the potential of other security token exchanges for solving real-world problems. Below are some essential benefits that are provided to users on the platform.
- Over 1,000 tokenized securities on offer to investors, including investors outside the European Union. Note that the platform does exclude U.S. residents as well as other nations on the Financial Action Task Force’s blacklist of high-risk nations.
- Users are not required to exchange their cryptocurrencies into fiat money before investing in traditional asset classes.
- The platform has added Moonfolio, a free cryptocurrency tracking app, allowing users to track and manage a diversified portfolio.
- Users have platform access to securities associated with industry leaders such as Microsoft, Twitter, Hewlett-Packard, AT&T, Boeing, Tesla, Ford, BMW, American Express, JP Morgan, and Deutsche Bank.
- The platform has a reward program for referral invites resulting in successful registrations. Currently, a user will earn 50% of the trading commissions for each newly referred user for six months of trading.
Currency.com’s main goal is to usher in an age of “seamless financial democracy.” Building a bridge between crypto investors and traditional asset investors, Currency.com is working towards the broadening acceptance of security tokens. Some of the critical problems that the platform addresses are explained below.
- Tackling Shortcomings of the Current Financial System: Digital assets have gained popularity in the last few years, which is why it is understandable that digital asset holders want to diversify their investments beyond utility tokens, such as most cryptocurrencies. The current financial system has some significant shortcomings when it comes widespread adaption of digital assets. Currency.com removes some of these barriers, providing a stable framework for the diversification of portfolios. It also aims at expanding cryptocurrency adoption on a global level, allowing investors from countries plagued by financial instability or political upheaval to freely participate in the market.
- Speculating on Real Assets: There has been a rise in demand among cryptocurrency investors for accessing financial markets in Europe. However, many laws and economic restrictions can vary among countries, restricting users from free market participation. Currency.com removes some of these restrictions, allowing users to invest in security tokens from multiple countries, within a regulated European Union exchange.
- Tackling Regulatory Issues: In several countries, regulators have been responsible for limiting access to riskier products and services, including blockchain technology. As a result, adoption rates decline due to the compromised functionality of these products and services in those countries. Currency.com, based in Belarus, is based in a country known for its positive stance for crypto adoption. Unlike many other counties which still apply old regulations to tokenized securities, Belarus has new regulations supportive of tokenized securities, making it a friendly jurisdiction for the exchange.
- Better Liquidity and Pricing: Many exchanges have a recurring problem of not honestly reporting their trading volumes, often exaggerating volumes or not providing the best possible matching prices. Currency.com, with the help of its partner company Capital.com, and market makers on the platform, have the potential to provide better liquidity and pricing data for increased transparency via the inherent properties of blockchains.
- Appropriateness for Leveraged Options Usage: Trading with leverage has always been described as a double-edged sword, magnifying both volatility and risk. However, this also leads to the chance of earning significant profits atop a small principal, if the leveraged asset value appreciates. Because dealing with leverage is inherently risky, smart contracts and other blockchain technologies can help to automatically mitigate the risk of leveraged options positions. One famous example of the use of smart contracts reducing the risk of leverage is the Maker (MKR) project, which automatically liquidates only the precise proportion of deposits which are needed to be liquidated in order to capitalize the user’s loan reserve minimum. Maker eliminates the need for human risk managers in many situations. Other blockchain technologies have also explored the area of automated risk mitigation.
Final Thoughts
Currency.com and other security token platforms have considerable potential both in terms of adoption and awareness. New exchanges can educate users, providing them with resources to enhance their experiences and understanding of blockchain technologies. As more users start to join platforms like these, the volume of trading in utility and security tokens will increase. The securities token industry is looking to projects like Currency.com to provide leadership in this burgeoning industry.
