Given the volatile nature of cryptocurrencies, many investors are averse to putting their money in the asset. However, the cryptocurrency derivatives market aims to offer a synthetic exposure of the investors to the nascent market. One product that is looking to exploit the derivatives segment is security tokens.
According to a recent Diar report, there is a deliberate effort by cryptocurrency exchanges to facilitate launch of security tokens. This is for the reason that the actual price of cryptocurrency seems too volatile for investors. Also, most of the investor appetite tends to lean in the direction of tokenized securities.
Security Tokens Offer “Token Economics”
Interestingly, the report cites the lack of utility for many tokens they list as the primary reason for tokenized securities. Further, the report elucidates that the exchanges are basically looking to diversify their portfolio with the product. Accordingly, security tokens are a way to “support the long-term growth of an industry stuck in development.”
Forbes notes that most utility tokens backing up initial coin offerings (ICOs) lack “token economics.” Basically, this means that the tokens are difficult to convert into currency. Due to this difficulty, investors are bearish on the nascent market, Forbes reports. Therefore, security tokens are gaining traction since they make the process bearable.
Forbes quotes Founder and CEO of Desico, Laimonas Noreika, who observes that tokenized securities are the new link between the old and new. “Tokenized securities are bridging the gap between traditional financial markets and crypto-markets because they are aligned with everyone’s interest,” he relayed.
A New Lease on Life for ICOs
In light of this, tokenized securities offer more protection to investors. Basically, the asset class operates within traditional financial market regulations. As a result, security tokens display better token economy as they are easily convertible into currency.
Noreika explains that, “Regulators want to protect the investors, investors want their assets tradable, and crowds from all over the world want to invest in the most promising startups at an early stage.”
Further, Forbes explains tokenized securities as products which “enable the ownership of token transference over blockchain technology.” Therefore, the publication terms the tokens “digital assets.” In the US, steps are in motion to create platforms and structures that will facilitate availability of tokenized securities.
Therefore, with such efforts, ICOs may get a new lease of life where they will operate under regulatory guidelines. Also, it will reduce instances of fraudulent ICOs.
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