The Security Token Dilemma: Infrastructure Versus Application
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The Security Token Dilemma: Infrastructure Versus Application

The security token industry is currently wrestling with a unique dilemma over whether it should adapt to the existing infrastructure for securities or create an altogether new framework led by application. The issue has been called one of the most pressing questions within the space today.


What comes first: infrastructure or application? It’s sort of like the chicken-or-the-egg question for the blockchain space.

Carlos Domingo, CEO of Securitize, is of the opinion that security tokens can drive infrastructural development. This is reflected in the company’s current mission: they have been building components which seek to easily integrate into existing exchanges.

However, some disagree with this approach. Jesus Rodriguez has been writing about the tokenized security industry for some time now and he shared his thoughts recently in a blogpost of his.

The Infrastructure-Application Cycle

The immediate question for the tokenized security space: do we need entirely new infrastructure? The difference of opinion on this matter can be broken up into two main camps.

  1. On the one hand, some projects have taken the approach that security tokens can be integrated into the existing securities market through “digital wrappers.” Companies like Securitize, previously mentioned, are pushing for this solution.
  2. On the other hand, there are those that believe that security tokens represent an altogether new form class of assets which currently has nothing like it in the marketplace. This is the second, more radical approach.

There are the two camps and there’s ample room for disagreement here. For example, for those that believe in integration, security tokens must have compliance and disclosures “built-in” to their design. They are programmed into the system, so the speak. However, if securities represent a new form of assets then the necessary new infrastructure is going to be driven by new applications in the space.

The problem between these two groups is what Jesus Rodriguez has dubbed the “infrastructure-versus-application” security token dilemma.

Eventually, this dilemma is going to need to be resolved. According to organizational theorist Geoffrey Moore, the evolution of any new technology requires the development of a “gold standard” on which all application thereafter is based or derived from. However, before this is possible, technology needs to make the push and close the gap between isolated use-cases and mass acceptability.

Rodriguez places this crucial gap between tokenized debts/corporate issuances and specialized security token protocols. For him, the development of tokenized securities as a mature space will require their own, unique protocols. Therefore, towards this end, we will need entirely new forms of digital infrastructure according to Rodriguez.

Do you agree with Rodriguez’s conceptualization of the security token dilemma? Would you agree it’s the “most important dilemma in the security token space today?” Let us know in the comments.


Image courtesy of Hackernoon.

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November 20, 2018

About Author

SiaMohajer Sia Mohajer is the cofounder of The Tokenist and Coin Crunch. Sia founded Next Ventures in 2013. He believes in a decentralized future and a new era in global finance.