There is a multi-trillion-dollar world out there.
Illiquid, privately held assets ready to be tokenized on the blockchain. Security tokens are the most logical connection between classic finance and blockchain, giving benefits to both.
Even if the security token offering (STO) market is still young and in the early stages of development, it shows potential in the entrepreneurial and finance scene. Some companies, banks, and institutions are already pioneering new financial products.
This decade will certainly see the rise of this unique type of token, which represents one of the most promising applications of blockchain technology yet.
Let’s look at some of the most significant examples within this industry to understand what has already been done.
In April 2021, the EIB (European Investment Bank) launched a native digital bond on the Ethereum blockchain platform, in collaboration with Santander, Goldman Sachs, and Societe Generale. It is the first time a public bank worked with a group of private banks to sell bonds using blockchain.
The transaction consisted of a series of bond tokens, where investors purchase and pay for the security tokens using traditional fiat money. Since the EIB is traditionally a pioneer in innovation, this bond could pave the way for new market participants to use blockchain technology to issue native financial securities. It is a further sign of interest from the capital markets in adopting blockchain technology.
100M 2 year bond, placed with key market investors. While much of the bond processes could be replicated on-chain, the implications of using digital technology were most beneficial in the clearing stage of the process. Trades could in fact be reported and settled immediately on the blockchain, so the role of the central securities depository (CSD), the traditional vehicle for reconciling transactions, was replaced by the platform manager, Societe-Generale Forge.
In December 2021, Munich-based fintech Cadeia, together with Bank Frick (Blockchain pioneer from Liechtenstein), launched a blockchain-based loan securitization. As explained in their press release, the main goal of this blockchain-based securitization is to save money and time in securitization transactions.
This fully integrated, highly automated end-to-end loan securitization reduces manually error-prone work processes and provides a common database for all transaction participants, costing and time. Allows for savings. In this way, Cadeia enables banks and financial intermediaries to carry out securitization transactions in smaller volumes, improving their ability to manage risk and liquidity.
The subject of the so-called “GreyPeak 2021-1” are traditional, unsecured corporate loans from Bank Frick. Not only banks and financial intermediaries benefit from the move.
In fact, improved risk and liquidity management options make it easier for banks to provide new loans to customers such as small and medium-sized enterprises (SMEs), helping to improve the financing situation of the economy as a whole.
INX Limited – Tokenized shares
In August 2020, INX token became the first-ever SEC-registered IPO on the Ethereum blockchain. This global trading platform for digital securities raised 125$ million in a security token and equity offering.
At the time of writing, INX is traded on OpenFinance (an SEC-designated ATS). It’s also one of the world’s largest security tokens, with a market cap of more than $250,000,000, surpassing security token veterans such as tZero by more than a four-to-one ratio.
As a security, INX token holders receive an annual 40% distribution of any positive net operating cash flow generated by the company. The success of the INX token demonstrated one thing: the model works.