This is a guest post submitted on CryptoTapas.
Big changes to the traditional methods of storing financial assets and holdings are on their way, and they may not be as far off as some people think. Security tokens are going to be taking over banking and the rest of the financial worlds. All parties involved in the financial world will notice multiple benefits from this tokenizing of securities.
Tokenizing securities is essentially taking a number of traditional financial products and moving them from traditional recording methods to the blockchain recording method. Let’s explore the top 10 benefits of this move to digitizing securities.
1. Potential For Around The Clock Markets
Right now, almost all traditional financial products are only available during normal banking hours. Whether it is a stock market or even some parts of your banking needs. When everything becomes tokenized this brings the potential for the financial products to be accessible around the clock.
Cryptocurrencies are a good example of this. You can trade currencies such as Bitcoin at any time of the day because the whole process is digitalized.
2. Stricter Compliance
Currently, compliance agencies around the world are focused on responding to governance issues and regulation issues after something has happened. This puts a lot of stress on the agencies and makes trials take a long time to be completed.
By tokenizing securities, there is much stricter regulation. Each token can be programmed with the laws that apply to that specific token. For example, if an owner cannot trade/sell a token for 12 months after assuming ownership, that can be programmed into the token. You can also program into the token who is allowed to take ownership of that token should it come time to sell.
With more of the compliance taken care of on the digital side, this will allow the various regulatory bodies to save money on manpower and resources.
3. Fractional Ownership Of Securities
With traditional trading, a party needs to buy a full asset. There are ways around this but they are time-consuming and not as reliable. With tokenized securities, you can make fractional ownership of an investment much easier. You can write directly into the token the ownership of the security.
Because the securities are digitalized, fractional purchases and sales are not only easier, but they are quicker. The whole process is done digitally and you don’t need to go through long, complicated processes for each transaction.
4. Introducing New Investors
One of the biggest reasons that investors from around the world stay away from international markets is that they can’t be traded during their hours. With the above potential for around the clock trading, more people will be able to access the markets from around the world.
New investors will also be able to be introduced through the above-mentioned fractionalization of securities. One person no longer needs to come up with the complete capital for an investment. That means groups can invest.
5. Transparency For Buyers
We all want to be able to verify data on our financial transactions. With tokens, you can track the history of purchases and see where it is coming from. You can verify that the token is still valid and see all the other information on the token that you purchase. Better transparency means that you won’t have to worry as much about fraud and corruption when you are trading in securities.
6. More Efficient Processes
Digitalizing the securities world allows for much greater efficiency. These systems will be moving to a blockchain model partnered with smart contracts. This removes a lot of the slow down in the modern market.
Banks have to have large back offices in order to facilitate transfers of ownership. This costs them a lot of money and adds time to your work. The work that is there is much easier as you don’t have to worry about complicated auditing and accounting as transaction history is much easier to view.
Lawyers and other middlemen are also not needed as almost everything can be handled digitally. At first, people might still turn to traditional middlemen and lawyers as they learn to navigate the world of digitalized securities, but this will go away quickly.
7. Better Liquidity
Because fractionalization and around the clock access to your securities is made possible by tokenizing securities, they become much more liquid. You don’t have to wait until banking hours to access your securities and then wait days while all of the paperwork is done. You can sell your ownership quickly and easily.
This includes more liquid fractionalized ownership. You can sell of your piece of a security or part of your security and make money. Partial ownership means that more people have access to investment opportunities and as such you can get cash much quicker. You don’t have to worry about trying to find an investor.
8. Security Interoperability
Securities are currently stored on a number of different style systems in each country. In order to send values from one platform to another, it takes days or more for conversion. Often this is due to a number of steps being needed. For example, if you wanted to send money from Paypal to Venmo you would need to send your Paypal money to your financial institution and then from there to Venmo. Each transaction takes an average of a day in this example.
Once tokenized, securities will operate on many similar blockchains and a good number of them will be designed to be interoperable. You will be able to trade assets between different blockchains as long as they are compatible with each other.
9. Easier Cap Table Management
For a business, having list of who owns which securities can be a great asset. Currently, that takes a lot of work as you need to track a number of different types of securities using different platforms. With blockchain management of securities, you will be better able to manage your cap tables. All of the trades and other information is accessible through the tokens so that they can be easily tracked.
10. A Real Value
Each token represents an actual partial ownership in a company or asset. That means that these tokens have a real value assigned to them. The worth isn’t some reliance on a third party stating that you own a stock. Having access to your ownership of a company or asset is why a lot of people feel safer with cash than traditional investments or are interested in Bitcoin over other investment options.
In simple, you have access to your token, and you don’t have to go to anyone else to sell it. There won’t be anyone else holding your asset.
Tokenizing securities will bring a lot of changes to the market, but almost all of them will be positive. Along with changes comes a lot of uncertainty and fear. This has led to a lot of discussions as to whether or not tokenizing is the right step for the financial system.
At this point, there are a lot of people working on making tokenizing happen. Even with all of that work having been put into digitalization, there will still be a decent amount of time before tokenizing happens to the market.
The benefits mentioned above are only the top 10 that the market will see. As digitalization happens, there will be many benefits brought to investors and businesses around the world. To banks and financial institutions too. The benefits will vary amongst each party, but we are sure to see significant improvements over the current market, especially after the conversion to blockchain has a chance to set in and people get used to it.
Thank you for reading the article.
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