The world is shifting from ICO to STO. Unlike ICO, issuing securities as a financial product based on STO regulations is expected to give higher protection from damages such as fraud. In Japan, however, major STO projects are not realized and is a step back from the rest of the world. It can be said that the preparation of a bill is an urgent matter in order for domestic companies to promote STO financing and projects that use ST.
JSTBA, as a self-regulatory organization related to ST, wants to serve as a foundation for promoting just and well-conducted domestic business.
A security token is a digitalization of securities using blockchain technology. Security token offering (STO for short) is a fund procurement method using security tokens (ST). The blockchain technology adopted in STO is said to be extremely difficult to tamper with and highly secure.
The principal feature of STO is the protection of investors by various regulations under the Securities Act and Financial Instruments and Exchange Law. In addition, the main features of when issuing security tokens are disclosure of financial statements and business plans, and thorough due diligence. From now on, the trend will shift from traditional ICO funding to regulatory STO funding worldwide.
According to the survey conducted by Money Project, a US NGO, the global derivatives market is 130 quadrillion yen. As you may know, derivatives include various financial instruments such as insurance, covered warrants, loans, and convertible bonds. Replacing all into security tokens is thought to be nearly impossible, but if 30% of them are replaced by blockchains and converted into security tokens, the market size is estimated to be 39 quadrillion yen. Thus, the ST market is presumed to be a market that produces an astronomical amount.
As of December of 2018, 50 STO projects were implemented worldwide, half of them in the US and many of the rest in Europe. It is worth noting that in some tax haven countries such as Singapore, Malta, and the Cayman Islands, STO is already in operation. However, as repeatedly stated, Japan has yet to incorporate STO while other countries have projects specializing in exchange platforms — namely, Polymath, tZERO, and Hydrominer.
STO is currently categorized in three ways:
The first is a platform that switches over from handling utility tokens to security tokens. An example is Coinbase. It is reported that with approval by the financial industry regulator, it has begun to establish a security token exchange.
The second is a platform that specializes in security tokens such as tZERO. Currently, tZERO is not an official exchange but a system where only qualified investors can trade security tokens through brokers.
The third is a platform that is converting from traditional securities to security tokens. The Malta Stock Exchange is working with Binance to create such security token exchange.
Next is on the features of companies that can offer tokenization of securities and initial offering markets by STO. More than 10 companies that have a mechanism that allows issuers to offer investors on the platform marketplace exist outside of Japan.
Secondary markets are of course needed to maintain the liquidity of security tokens after selling security tokens with STO. Such exchanges are being launched one after another. As mentioned earlier, this includes tZERO, which was launched in January. Other exchanges are expected to operate by the end of the first half of 2019.
Various STOs are currently being conducted, and different forms of securities such as equity token, stock token, dividend token, revenue share token, and covered warrant token are provided as security tokens. In the future, STO by insurance, real estate, gold, silver, platinum may be performed. Bills are being enacted soon in the Philippines and the United States. In this way, the movement of the bill on security tokens has been reported overseas and soon enough security tokens will be enacted in various countries.