Bearish on security tokens

One of the hype waves in blockchain is security tokens. As in ticketing, I’m skeptical that security tokens will lead adoption; rather I think security tokens may lag adoption.

Fundamentally, I don’t see where the demand comes from. Who is dying to own a security that is tokenized? You have to 1) solve key management (we’re making progress on that!) or 2) pay ridiculous amounts for custody or 3) use a private blockchain. If you use a private blockchain, what’s the point – that’s just a very inefficient database.

Until we solve private key management, there’s just no way that enough demand comes. The demand for utility tokens came because crypto natives wanted to fund the app layer on Ethereum and new business paradigms. That is not the case with security tokens.

There are some cool things like real estate that you can tokenize, so I do think real estate will be one of the first things that does get tokenized, though even this is not a scalable market at the moment due to lack of demand.

Furthermore, securities are heavily regulated, which means that on the supply side you’ll probably have to deal with more – and conflicting! – national regulations than you would in a security issued in one national jurisdiction. Plus you’ll have to deal with lots of burdensome KYC/AML for buyers. It might be even worse than for legacy assets. Liquidity premium? Global liquidity? Color me skeptical on both fronts for now.



And note: while plenty of people are acquiring securities licenses to enable exchanges, at the moment there are basically none. So any security token is quite illiquid at the moment. Will this get solved? Eventually, but it’s a risk factor right now even if you solve the other stuff.





There are lots of great things that can be done with security tokens. But how far away are we? It doesn’t feel particularly close to me, though I hope I’m wrong.