The Founder of Fintech Silicon Valley, Pemo Theodore, recently recounted a discussion by investment experts on the growing world of security tokens and how it can disrupt the entire venture capital world. The talk was illuminating of the challenges facing the industry, but there was long-term optimism in the air.
The group converged on a foggy San Francisco evening, but were met with interest from listeners as leaders in the investment and cryptocurrency space discussed the future of an exciting asset class: security tokens.
“We’re Going through a Natural Cycle of Volatility”
Many of the participants at the discussion emphasized that, currently, the market was going through a natural market cycle which is typical of a nascent industry.
Ben Narasin of Venture Partner NEA made the point that, as it stands now, this is a “speculator’s market and not an investor’s market.” David Blumberg, Founder of Blumberg Capital, chimed in with the same concern: “Traditional venture capital is really about building companies and support entrepreneurs to build long-term value.”
“Traditionally,” he continued, “volatility is not something venture capitalists and entrepreneurs are looking for.”
Security Tokens… or Utility Tokens?
When the conversation moved to security tokens versus utility tokens, Kendrick Nguyen, the CEO of Republic, argued that, frankly, most tokens today are security tokens — end of story.
“There is no such thing as a new token that is not a security token unless it is completely stable, or that you can use it for consumptive purposes,” he reiterated to the group which they seemed to be in agreement on.
Miko Matsumura, Founder of Evercoin, agreed with Kendrick and added another point: almost all utility tokens are, for all intents and purposes, security tokens. : “if you think there’s a thing called a ‘utility token’ that’s not a security…. Nine times out of ten you’re going to jail.”
Disrupting Venture Capital
In effect, token sales are comparable to venture capital fundraising; it’s the financing of an early-stage project.
Ben Narasin, however, seemed to believe that ICOs are “equity-like instruments” and that we must been keen to avoid big risks. A company holding an ICO could fundamentally “change the nature of the company,” he said, which is why so many are on the sidelines.
Although it’s clear that tokenized securities will disrupt venture capital, the question is when. The responses from the group seemed to be scattered. The current hesitation, Kendrick said, “is a lack of clarity” and “I think that’s a major problem of entrepreneurs.” There’s just simply too much undefined territory now. “Certainty is good,” it’s a must, and we need “a bit more transparency,” David Blumberg opined.
Until then, entrepreneurs can easily say “I’m already already cash flow positive, I don’t need it” to the security token industry. That’s the problem, David said.
The group seemed to be in agreement that tokenized securities are just not attractive enough now and there must be more clear regulations. That seemed to be the takeaway from the group, but as for the timeline for the future, there were varying opinions thrown around.
Watch the full livestream discussion here.
What do you think about the short-term future of the security token industry? Is the short-term outlook positive? Let us know in the comments below.
Image courtesy of Fintech Silicon Valley.