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According to the authors of the article at the fundamental level, blockchain is an enabling technology, nothing more than that. Many of the outlined benefits will require regulatory revisions, adoption of new markets, or a paradigm shift in business practice. However, they still believe that blockchain will add value to securities markets, that “programmability of an asset” is the core feature of a security token, which would enable adding utility functions to a security, baking in compliance, and mitigating settlement costs.

There are several benefits that can be seen through combining programmability with traditional securities.

Added Utility Functions

Having the ability to program a specific utility function into traditional equities could add value to the security that was previously impractical. For example, offering stakeholders of a media publication the opportunity to curate the front page. Applying the DPoC approach, passive investors could delegate this responsibility elsewhere, while active investors could take part in pushing quality content. If the publication has a significant user base, having such utility adds more value to the security.

Reduction in Regulatory & Compliance Costs

Having the ability to program specific compliance functions into a security could significantly reduce the cost of compliance-focused staff, while also making the job of regulators easier. It is possible to program rules such as KYC/AML policies, maximum number of holders, distribution conditions, lock-up periods, etc.

With these rules programmed into the asset itself, regulators can rest assured that policies will be self-enforced. The role of the regulator would begin to look more like that of a smart contract auditor.

Mitigating Settlement Costs

While the length of time until settlement is a regulatory decision, the cost of settlement is not. Large banking institutions maintain a strong head count in what is commonly referred to as the “middle office”, primarily to settle transactions.

If settlement features of an asset were programmed directly, the operational costs of maintaining a middle office could be mitigated at worst and entirely eliminated at best, all while still providing a secure way to settle transactions.

To continue, tokenizing seed-stage equity of a startup, in our view, doesn’t really benefit the market as a whole. You end up with the passive investor looking for a quick exit (as seen in the ICO bubble), rather than the longer term support of an active institutional investor. Additionally, you add significant responsibilities and headaches for issuers, including 24/7 price discovery in an inefficient, immature market, more oversight from regulators, and greater disclosure burdens to public stakeholders.

To sum up, the blockchain space is exciting and full of promise, making it is easy to get sucked into the dream without thoroughly considering how difficult it would be to get there, and why things work the way they currently do; we think it is important to note that, in the end, blockchain is an enabling technology. Those working on security tokens will have many regulations to navigate, many processes to understand, and many incumbents to appease.

With this in mind, ICON’s security token standard will focus on what programmability can enable. ICX Station wants ICON’s partners, such as the Korea Financial Investment Association (KOFIA), to have a better understanding of reality vs. hype when it comes to tokenizing securities and work together to build a better infrastructure for the securities market. The value proposition is clearly there, and ICX Station looks forward to collaborating with others who share a similar vision to help the industry evolve.

The purpose was to create a bridge between governments and companies pushing the growth of the domestic blockchain industry.

The event was observed by the Jeju Special Self-Governing Province of South Korea, and was a well-attended second meeting following the initial session on the 20th.

Local governments, such as Jeju and Busan, are moving forward with becoming designated as blockchain special zones according to the ‘Act on Special Economic Zones for specialized regional development’, which will be implemented in April. Jeju aims to push for three special zones: blockchain, electric vehicles, and cosmetics, and blockchain is the first priority.

Jeju plans to apply for the special zone designation when the Districts Act is enacted, and currently handles interest and inquiries through its dedicated website. If Jeju applies for a blockchain special zone, the special zone will be selected after a final review by the Special Economic Zone Commission on Regulatory Freedom presided over by the Prime Minister in July.

Following the local government’s application and approval from the Ministry of SMEs and Startups, companies can utilize three types of regulatory special circumstances (regulatory verification, temporary demonstration, temporary approval), as well as financial support, tax support and reduction of levies.

ICON hopes this event will be a great first step toward the creation of regulatory special zones and will continue to bridge the gap between government and private companies to further push the adoption of blockchain technology.

Upcoming events:

Location: Hong Kong

Date: 13–14 March, 2019

Josh Choi, Director of Public Affairs at ICON Foundation, will be participating in a panel discussion about ‘The Decentralized Future: Interoperability And Scalability.’