Challenges for the Industry

As you may expect as a reader of our newsletter, the event also demonstrated the security token space is still in its infancy. Of the blockchain-focused VC funds that we spoke to, none had yet actually invested in an STO project — other than projects that make up a part of the security token infrastructure. The reason? A lack of investor education on the one hand, and a lack of appealing investment opportunities on the other.

But we do not just need educated investors, but also interested investors. As Keiretsu Capital’s founder Matthew le Merle said: “Capital is local”. Specifically for equity raises, investors want to see the company they are investing in. So although the crypto world is global, and the idea of liquidity for STOs also comes from a borderless point of view, security token projects that are looking to raise funds, will always find it easier to contact investors close by. People you can talk to (and convince) face-to-face. And perhaps this is a challenge that many security token issuers have yet to realize.

New Projects in the Asset Tokenization Space

But while you could say that the space is still in its infancy, you could also say that it’s evolving. For instance, more and more companies are ‘nichefying’, bringing tokenization to personal experience and expertise.

An example of this was the talk held by Altfin Partners, a company with a strong background in the shipping industry. Altfin Partners are planning to tokenize debt in the shipping industry, where tokenization could reduce overhead significantly (see their article on this subject).

In our view, such sector-focused companies are fundamental for the security token industry. We need people who truly know what they are doing. People who can pinpoint a specific problem that they have experienced themselves — and that know exactly why tokenization is the right solution.

Mi Sun Cho from Codechain (Photo by Sea Foam Media on Twitter)

In the same vein, we were pleasantly surprised by another project: Kodebox’s Codechain. Codechain is a purpose-built blockchain for security tokens. In her presentation, Codechain’s COO Mi Sun Cho gave a good indication of the need for such a blockchain to exist:

You have to support two things that are contradictory. Security tokens cannot be anonymous, the transactions should not be anonymous — because you have to know the kind of investors you’re dealing with. But if you put all the information of your investors on-chain, you’re disclosing everything about them, and they will not want that. So you also have to protect their private information. So there are trade-offs; you have to engineer a kind of technology that supports both things.

We could go into many other projects that we’ve encountered at Security Tokens Realised for the first time, such as institutional-grade exchange Archax or tokenized real estate Crowdlitoken. But the point is that the event was a great way to see where the industry is heading to.

Conclusion

Security Token Realised brought professionalism into this space, demonstrated the growing interest from investors in tokenization, and showcased some highly interesting (European) tokenization projects.

It also showed that for the benefits of tokenization to materialize, and for us to truly unlock value in large illiquid markets, there is still a long way to go. But it’s conferences like these that offer a brief insight into the current state of the market: and we’re certain the market is heading in the right direction.