More than half a billion dollars have been invested in security token infrastructure so far. This build-out is crucial for the industry’s future, as infrastructure requirements for security tokens will be different compared to unregulated ICO markets.
As of March 25th, 2019, more than $500,000,000 have been invested into the security token industry, according to Security Token Group. And the number will likely increase over the next years.
This number is not based on exact science, as the definition of “security token industry” may vary. But Security Token Group delivers a breakdown of where exactly the money had been invested (see below).
The study shows the kind of firepower that is already behind the still nascent industry. Sure, compared to the size of traditional trading infrastructure, half a billion dollar is merely a drop in the ocean. But considering how young the industry is, and considering that most people, including professional investors, still don’t know what a security token even is, the number is quite significant.
Infrastructure enables liquidity
The early days of ICOs have seen more of wild-west mentality that was far off from what a professional investment landscape looks like. Investors often put their money on the table before a single line of code had been written.
On the contrary, security tokens are regulated investment vehicles, attracting more professional investors. STO retail investors and especially institutional investors are not likely to pile-in before they know what the exit strategy will look like.
Thus, before the market can attract significant volume, the infrastructure needs to be developed to the point that investors understand not only how they can get in, but also how they can get out.
In the past, some have compared blockchain infrastructure with railway lines, which is misleading. Trains go into one direction and then come back using the same line. Investment infrastructure needs to be circular, more like a horse race track. Security tokens need a completed circuit to attract liquidity. Investors need to know how to buy and sell their assets. If they can only buy, without knowing when and how they can sell, they won’t be interested.
Greater regulatory and legal requirements
For now, secondary market options for security tokens are still in a rudimentary stage. While some exchanges have set out to offer security token listing and regulated secondary trading, just a few of them have actually launched a platform.
Lack of secondary trading infrastructure is not only a concern on the investors’ side but also for token issuers. Liquidity is the main reason why businesses launch STOs in the first place. Thus, if there is no infrastructure in place that enables future token liquidity, what’s the point of conducting an STO?
In the unregulated utility token market, this wasn’t much of a concern, as exchanges could launch and operate without the scrutiny of financial market watchdogs. In the case of security tokens, legal and regulatory compliance is an entirely different ball game.
And that’s precisely why infrastructure investment is so crucial for the future of STOs. The infrastructure requirements for security tokens are significantly higher than it was the case with ICOs. But that build-up needs time, expertise, and it needs capital.
Security Token Infrastructure Investment Breakdown*:
Polymath, Barbados — $58,700,000
Harbor, San Francisco — $38,000,000
BankEx, New York — $30,000,000 (ICO)
Securitize, San Francisco — $12,800,000
Prometheum, New York — $12,000,000
Dharma Labs, San Francisco — $7,100,000
FinHaven, Vancouver — ~$5,900,000
BrickBlock, Gibraltar — $5,700,000
Swarm, San Francisco — $5,500,000 (ICO)
Neufund, Berlin — $3,420,000
Atomic Capital, New York — $3,400,000
SeriesX, Austin — $2,300,000
Abacus, San Francisco — $2,100,000
Smartlands, Cyprus — $1,750,000 (ICO)
Smart Valor, Zug — $1,500,000
Stem, Amsterdam — $300,000
TZero*, New York — $134,000,000
Gibraltar Blockchain Exchange, Gibraltar — $27,000,000
Sharespost, New York — $15,000,000
Templum*, New York — $12,000,000
Hyperion*, Toronto — $8,000,000
INX, Gibraltar — $1,400,000
Open Finance Network, Chicago — Undisclosed
Archax, London — Undisclosed
Other Infrastructure Companies:
SIX FinTech Ventures — $50,000,000
ComplyAdvantage, New York — $30,000,000
TransitNet, Los Angeles — $2,500,000
Security Token Group, Miami — $1,000,0000
Tokenomix, New York — Undisclosed
ICO or FinTech Companies Offering STO Services:
CoinBase, San Francisco — $300,000,000
Bakkt, New York — $182,000,000
Waves/ Tokenomica, Moscow — $120,000,000
SIX FinTech Ventures, Zurich — $50,000,000
BnktotheFuture, Hong Kong — $30,000,000 (ICO)
Trust Token, San Francisco — $21,700,000
StartEngine, Los Angeles — $14,600,000
Republic, San Francisco — $12,000,000
Coinlist, San Francisco — $9,200,000
Aarnav, New York — $230,000
iComply, Vancouver — Undisclosed
Currently Fundraising Category (notable mentions):
VRBex, Houston — $100,000,0000
Desico, Vilnius (Lithuania) — $5,0000,000
Abstract Tokenization, Denver — $3,000,000
Issuance, Los Angeles — $3,000,000
Digishares, Denmark — $1,100,000
Securrency, Washington D.C. — Undisclosed
Satang, Thailand — $10,000,000 (STO)
*as of 25th March 2019; Source: Security Token Group