Alex Miningham, CEO of Proof Network and 2014 Business Observer 40 under 40 recipient, has recently detailed the many benefits of the security token industry. The advantages, he says, entail precisely the criteria sought after by most large investors, which will make Security Token Offerings (STOs) a prime investment target in the near future.
Proof Network is creating an enterprise-grade, blockchain-based cloud computing platform to support the global alcohol industry. Their client base entails over 250 retail stores and more than $1.4 billion in annual sales.
Proof’s CEO, Alex Miningham, is therefore quite experienced when it comes to talks with investors. Over the last few months he has talked to over one hundred crypto investment enterprises— to include family offices, angel investors, venture capitalist firms, and hedge funds.
Fortunately for us, he went on to share the valuable insights he gained from such discussions.
How Security Token Offerings Appeal to Traditional Investors
In general, Miningham highlighted how most investors in the blockchain space are hesitantly cautious after the many disappoints of the 2017 ICO phase. As a security measure, most investors are now looking for projects which exhibit the following characteristics:
- Experienced team
- Product market fit
- Scalable business model
- Actual blockchain utility
- Proper structuring
- Compliant offering (Reg D, Reg S)
- Sensible fundraising plan and granular use of funds
- Reputable legal counsel
- Reputable co-investors
The most interesting aspect that Miningham pointed out, was how this list is virtually identical to the criteria followed by most traditional VCs and family offices. And what do the latter invest in? Equity— which is precisely what they’ll get through security token offerings:
“How can these investors get access to equity in early stage blockchain-enabled companies and still feel like they’re participating in the ‘crypto’ space? Security Token Offerings.”
The Benefits of Tokenized Equity Explained
In order for investors to have serious interest in STOs, there must be some aspects that will change the entire game of traditional financial securities. And there are many such advantages to tokenization, says Miningham.
First, increased liquidity offers broader access to capital for token issuers.
Second, the fees associated with token issuance are much cheaper than traditional methods.
Third, tokenization allows for fractional ownership. This results in a decrease of investor-barriers, where lower minimum investments allow for more investors. The likes of which can be seen through a $30 million luxury condo development in Manhattan and a separate real estate fund— both tokenized on Ethereum.
Fourth, the transparency of blockchain technology allows for easier and more efficient management and administration. There are real-time updates of the ‘who, what, and where’ for the sake of compliance.
Ultimately, many of the details required for the immediate adoption of security tokens are yet to be worked out. Even regulatory bodies— to include the SEC and ESMA— are still working on further clarification for the security token industry.
Nonetheless, Miningham remains sternly optimistic about the future of tokenized securities.
“I can assure you that things are moving quickly. Some of the brightest minds in the industry have been laying the pipes that will serve as the foundational framework for everything from issuance to compliance to trading. Companies like Securitize, Harbor and Polymath have all been hard at work over the last year building their own security token protocols which embed regulatory requirements into the tokens themselves so that they can be traded freely amongst investors across different exchanges. Alternatively, companies like tZero embed the regulatory requirements directly into the centralized exchange itself.… It’s no longer a matter of ‘if’ security tokens are coming, it’s ‘when’.”
Do you agree with Miningham’s remarks about the future of security tokens? What crucial steps need to happen in order to allow for mass adoption? Let us know what you think in the comments below.
Image courtesy of Proof Network.
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