Why you need to save your savings from even minimal inflation, than security tokens are better than classic investments and how to get rid of intermediaries who take a significant part of the profit
The word "tokenization" should not be misleading. The assets, which in this case are most often discussed, have nothing to do with highly volatile cryptocurrencies. These are mature blockchain technology products that have just hit the market. Tokenized assets represent a hybrid product of the classic financial market and blockchain technology that opens up new possibilities for existing instruments.
Why invest when you can save?
Prices rise over the years. The beautiful story that the money in the savings account in the bank is safely stored, and interest charges only increase capital – is not true. The reason for this is inflation. This is how Toms Kreitsbergs, executive director of the Latvian asset management company Indexo, described this phenomenon:
“If you don't go deeper, inflation seems like a petty, annoying bug. Every year he eats up a few percent of his savings – it's not so scary, is it?
In fact, inflation is a voracious rat, leaving only crumbs of your "cheese" over the decades. We all work hard to create savings and take care of our family's future. Wouldn't that anger you if some thief stole half of your savings? "
The topic of inflation is especially relevant now, during a severe economic crisis and the injection of trillions of currency units by world central banks. The logical solution for capital protection is investment. Blockchain-based security tokens, according to the creators, should simplify investment and provide access to companies that have the potential to generate large profits over time.
Is buying security tokens an improved version of the classic investment?
Thanks to the fourth industrial revolution, retailers today are armed with Big Data (big data), and technology manufacturers are getting smarter with the IoT (Internet of Things). At the same time, the investment sector is looking for the most convenient form of communication between those who want to raise capital and those who are ready to invest, be it specialized applications, crowdfunding or venture capital. This list also contains distributed ledger technologies (DLT) and blockchain in particular.
According to Deloitte, DLT should be seen not just as a new type of “database”, but as a new way of organizing the value chain of securities from issue to safe custody. But what exactly can be transmitted along this chain?
Today, these are security tokens, or, more simply, a digital representation of an irrefutable right to a physical stake in an asset. This right is built into the smart contract along with the relevant legal framework.
Basically, a security token is a digital signature that issuing platforms use to automate compliance, notify both investors and asset managers / owners that a certain amount of value is changing hands, and settle transactions with both parties. … As with traditional securities, investors have voting rights; they can receive dividends or profits, or they can trade in the secondary market.
So here are five reasons why investors should look at this emerging new alternative investing.
Fractional ownership – take as much as you want
The digitization of stocks makes them highly divisible, meaning that investors can buy a very small percentage of token assets. For example, one square meter in a multi-million dollar building. The sharply lowered buying threshold breaks down barriers to the inflow of billions of retail investor cash into the market.
Investing in real estate is a good example. While in the analog world it takes a significant amount of money to buy a share of real estate, in the digital and symbolic world it is possible to become a landlord with $ 500 in your pocket.
Tokens have a simpler investment structure and lower fees. Traditionally, investments are associated with a large number of intermediaries: banks, currency exchangers, lawyers, brokers, and so on. In this chain, each of them performs its own function and cannot simply be deleted. But that's just the tip of the iceberg.
The large number of intermediaries providing a smooth and legal transfer of ownership means a huge amount of fees, which grows in proportion to the investment. In the case of tokenization of assets, the technology removes most of them from the playing field. The project has documentation, transparency and a clear mechanism of interaction between the investor and the project. That is, there are only two participants left.
Towards maximum liquidity
Moving the investment process to blockchain creates a low-friction environment: automatic transfer of ownership while maintaining compliance, reduced costs and complexity, the ability to invest with fiat money or cryptocurrency, P2P trading on regulated exchanges – all of which contribute to increased liquidity.
This is similar to how e-commerce once completely disrupted traditional businesses. Just like customers can shop 24/7/365, it will be possible to trade digital securities anytime, from anywhere in the world.
In addition to all of the above, there is a regulated legal framework for security tokens. Europe is one of the friendliest places when it comes to launching compliant STOs (security token offering). For example, the UK Financial Conduct Authority has issued a cryptoclassification guideline that defines securities tokens as stocks or debt instruments and includes ownership.
Indeed, the industry is very young, but the infrastructure is developing by leaps and bounds, with the emergence of regulated platforms for the issuance of security tokens that meet the requirements of exchanges and depositories. At this rate, the placement of tokenized assets will soon be able to seriously compete with the IPO – they are cheaper and faster, have a broader base for raising funds, but at the same time provide a high level of legal protection for investors.
Cherry on the cake
A security token is essentially a digital signature included in a smart contract. Such a contract is responsible for the simplification and verification of transactions related to property rights. Like any software, it can be coded with some additional functions, in addition to those that were originally laid down in the project structure – a loyalty program, the ability to influence the development of the project through simple old control mechanisms, such as voting by shareholders or additional bonus dividends for accumulation assets. Projects can attract additional investors and stimulate them. At the same time, everything is automated, and the operations team and customers do not need to worry about legal compliance, verification, AML, infrastructure support, and so on. This is an added bonus that security tokens have over traditional securities.
In conclusion, tokenization of assets is not another type of investment; here it is worth talking about adding value to any investment project. Digital securities can shape the future of investment and finance, democratize access to wealth, and break down barriers to higher-return investment. As the token infrastructure picks up steam, pioneers can take advantage of the first mover advantage.