Possible Effects of STO’s on Tezos

One possible approach is that STOs are meant to be traded in real-time; sort of like putting a property on a stock exchange and the property unit price is floating. That means having a lot of STO’s on Tezos will likely lead to a high volume of trading transactions, which means a high amount of fees generated for bakers.

The bakers get fees for building blocks, and there is some burned for execution. It could perhaps be likely that Tezos may become valuable in the sense that people will need to buy XTZ to pay execution fees for trading security tokens and executing contracts. Perhaps if stocks and bonds begin being traded on Tezos, trading could be extremely lucrative because of the high trading volume of the security token being traded on Tezos. Think for instance, if Apple stock was to be tokenized on Tezos what that would result in terms of the trading volume.

The STO stage for real estate, at the current time, is just a proof of concept stage because of a few reasons.

No one has taken real property and done real-time trading with it, but it is trivial on a blockchain, so it is a better fit to do STO’s on a blockchain than on a traditional stock exchange as it can be too cumbersome with title, taxation, local laws, etc. Because STO’s are such a new thing, the trading volume is likely to start out very modestly, which is exactly what one would want to see because no blockchain has matured enough for billion-trades per day volumes, so tackling STO’s is perfect for the maturity stage that blockchain is at currently. Securities stocks are traded in such volume with such regulatory scrutiny that currently no one trusts a blockchain to handle stock trading, and since there is the NYSE and NASDAQ and they are doing a fantastic job for 200 years, people don’t sense a need to trade on some new platform. But that will likely change once blockchains prove themselves with STO’s as a proof of concept.

Once blockchains can prove they will not make a $1 billion “whoops, bad contract” with real properties, NYSE and NASDAQ will begin to trust it as viable. And there is a huge amount of stranded costs in traditional stock trading that can be cut out with blockchains, so the exchanges will likely panic when the first new exchanges promise quick settlement, low or no fees and immediate tax and titling settlement. By that time, in 3 years, blockchains will likely be capable of massive throughput (1 billion tx/day) and very low latency (think 5G cellular).

Another interesting feature for tokenizing real-estate (on Tezos or any other chain for that matter) is being paid dividends as token holders. Dividends, that is those derived from actual value rather than being paid speculative tokens or an imaginary value based on burning supply. If STO’s eventually go mainstream, it would beg the notion why would anyone prefer to keep their money in a bank and earn minimal interest on their dollar when they can transfer it to real-estate and have the same liquidity as cash.