The CEO of Athena Bitcoin, a firm that specializes in Bitcoin ATMs, came out with a long, detailed legal report recently on why he believes that tokenized securities will someday replace stock certificates. In the report, he makes his case on the grounds that tokenized securities allow for better auditability, reduction of costs, and faster updates of records.
Eric Gravengaard, the CEO of Athena Bitcoin, held back no punches in his strong report justifying security tokens as the future. The company itself has been reviewing several different frameworks for security tokens. Their own Athena Token Library will soon consist of external smart contracts that can be utilized by corporations and other Security Token issuers.
The Many Benefits of Tokenized Securities
Gravengaard begins his report with a simple story: in 2012, a flood at the Depository Trust & Clearing Corp destroyed one-third of its paper stock certificates. Naturally, this could have caused a massive problem: estimates of $10 to $15 trillion in value could have been lost. However, this obviously didn’t happen. The certificates were all symbolic and the information was stored digitally. Our stock market has luckily changed from being materially-based in certificates to being dematerialized. Now, we need to make the next step, Gravengaard argues: soon, these same stock certificates will be decentralized.
The ICO model for ERC-20 tokens on Ethereum proved one thing: it works as an effective mechanism to raise money. However, it is the opinion of Athena that soon investors will want the same traditional equity and income securities that come with traditional finance, and ICOs currently do not offer this. Gravengaard believes that this is ultimately the reason why the space will soon move to tokenized securities: to him, it’s the logical next step.
Naturally, this will require a modified token standard, or a new consensus system entirely, so that tokenized securities are reflected in the basic standards of the network. However, more importantly, tokenized securities will also require a close look at state laws and their respective compliance requirements.
The Legal Maze of Securities
Gravengaard outlines the many kinds of US corporate securities that currently exist along with the many kinds of bonds which he also believes should be tokenized.
However, he devotes most of the piece to the state laws regarding a new area: blockchain-related corporate governance. For example, some states have begun to legislate on how to use blockchain and DLT for governance, involving the registering of owners and conducting stock issuances on the blockchain.
Delaware, for example, has legal definitions for “stock ledgers” and how such a blockchain-based system would legally facilitate for a corporation. Similarly, Wyoming has its own legislation called the Wyoming Blockchain Legislation which was passed in March and formally defines “utility tokens.” Vermont is the third state law that Gravengaard mentions in his report which has laws on the books regarding blockchain-based limited liability companies.
Gravengaard goes into detail on all of these state laws and conducts a general overview of the legal environment for tokenized securities in the United States. Be sure to read his entire report for more information. It’s quite detailed.
Where do you see the legal situation for tokenized securities in 5 years? Will the United States be among the first countries to adopt specific legislation for tokenized securities? Let us know what you think in the comments.
Image courtesy of Athena Bitcoin.