Security tokens, or blockchain assets that represent ownership in a company or represent the right to earn dividends from one have been a touchy subject for quite some time. The SEC has threatened action and has already acted against some projects that already held ICO’s for tokens that the SEC considers to be unregistered securities. However, registered and legally compliant securities tokens could represent the next major wave of investment and innovation for blockchain assets. Some are even predicting that blockchain based securities tokens could largely replace stock trading as we know it today.
Coinbase Approved for Purchases
The endlessly successful cryptocurrency exchange known as Coinbase has reportedly been approved for its attempted purchase of three other financial institutions. Specifically, those institutions are Keystone Capital Corp, Venovate Marketplace Inc and Digital Wealth LLC.
It’s a fact that getting banking licenses or brokerage status is far from easy. It can take years of paperwork, expensive legal fees, and armies of lawyers to get done. However, there is a well-known way to sidestep this requirement. That being, companies can purchase or merge with an existing firm that already has these licenses or registrations.
It’s the sidestepping that seems to be the plan of Coinbase. With the acquisitions approved by the government, Coinbase will soon have the same legal standing as a full brokerage firm and have access to a number of banking services that may have otherwise been unavailable or have required a third party.
The laws right now in regards to securities tokens are somewhat vague, and are largely written to apply to other more traditional forms of securities, like stocks and bonds. But the SEC seems to be pro-security token and claims that they are willing to help and provide as much guidance as possible when it comes to getting companies legally compliant with their securities tokens.
Bye-Bye NASDAQ, Hello Security Tokens
One of the main arguments against Wall Street and stock markets in general is that they are sealed systems under incredibly tight regulations and even tighter gatekeeper policies. Having a company list on a stock market is unbelievably costly and time-consuming. So most small to medium-size companies forgo it altogether. However, getting listed can be an incredible source of investment funds for companies that can catch the public eye.
All that may soon change, however, as securities tokens become the next wave of investments. It is entirely possible that these tokens will allow for an alternate method for small to medium size companies (or even large ones) to fit the needs of a new generation of investors.
Not So Fast
While the buyouts have been approved, the process is far from over.
Typically, mergers and acquisitions can take years to complete. And when it comes to complex banking and brokerage licenses, that’s no different. However, what Coinbase is doing is acting one step ahead of market demand. When companies and legal frameworks are more mature and ready for securities tokens from established companies to go live, Coinbase will be there on the front lines with the knowledge, experience, and legal frameworks in place necessary to take the lead and set the example for other brokerages that want to deal with digital assets need to do.
Today, a few securities tokens exist already, but they are few and far between. One example is Nexo, a token released by the credit and lending company, Credissimo from the European Union. Following the establishment of its status as security, it was promptly dropped by a number of exchanges, including some decentralized ones. But it will surely be joined by many other tokens of its type soon once the laws and infrastructure becomes clear and accessible.
— Nexo (@NexoFinance) June 15, 2018
It’s even entirely possible that in the near future, companies will decide to skip the stock market all together and instead jump head first into releasing a security token that can distribute dividends quickly and easily through a standard smart contract format.
Other projects like Polymath are betting big on security tokens, as they could be a serious game changer.