There is a new trend in the age of digitization. Everything from stocks to real estate to venture capital is now being digitized with the help of blockchain technology. The issuance of digital securities not only upgrades existing markets and systems already in place, but has the potential to create new markets which don’t yet exist.
What is a Digital Security?
A digital security (often referred to as a security token) is a tradable financial asset secured by cryptography. Tokens are backed by an asset in the real-world, providing a fundamental value, whether that be a share of stock, an investment fund, real estate venture, and more.
Digital securities are purchased with the expectation of profits in the future, coming from dividends, price appreciation, or revenue sharing from the issuing entity. These securities are registered with the SEC and the issuing entity must be compliant with their regulations. The securites are powered by blockchain networks, which are immutable and transparent to help ensure the assets function as designed.
Benefits over an antiquated system
While digital exchanges have helped push trading markets forward, the underlying securities being traded on these markets have not changed in a century. Digitization isn’t just a new way to imagine these securities, it helps provide a much needed upgrade to issuance, distribution, and investment in companies and their assets.
Creates new markets
Up until now, it has been extremely difficult to create markets for new securities. Traditional securities, such as stocks and bonds, have global markets on which to trade. However, there are plenty of other assets which could be tradable, but don’t yet have any market to do so. Digital securities provide a platform on which to create markets for assets which never previously were investible to the general public.
Take, for instance, a venture capital fund. There does not yet exist a market on which traders can buy and sell shares in venture capital.Digital securities backed by venture capital funds are already being created by companies like CityBlock Capital and SPiCE Venture Capital, among others.
In summary, the trend towards digital securities is gaining momentum and increasing adoption will benefit all stakeholders and help create new markets for previously illiquid assets.