(A) Stands for Access, as both investors and issuers enjoy tremendously improved access to each other
(L) respectively for Liquidity, as securities are tradable before a final exit or IPO
(Q) means Quality as all such tokenized instruments, being securities are compliant to securities regulations for investor protection
(E) denotes Efficiency as all intermediaries of a normal IPO process are eliminated, especially custodians and legacy exchanges
(M) means Mobility as the digitized instruments are accessible 24/7/365
(Y) stands for yield as all of the above features bring improved risk/return profile of an instrument
The tokenization of assets and resources enables quicker, cost-effective, and increasing in functionality configurations. The high level of liquidity that can be attained through tokenization of securities is a crucial element that turns tokenized securities as an alternative option to the conventional trading/purchasing methods of bonds, stocks, shares, claims on real estate rental income and any income stream in general. The recently introduced rules and regulations guarantee that the customer is safe with their investment, shaping the tokenized securities into an innovative and secure method for exchanging and trading of assets.
The introduction of tokenized securities dates from several years back with the adoption of blockchain and DLT in general. Although the idea is not entirely new, their utilization started two years ago, as a result of the evolution of the crypto market. Another factor driving the demand for securities was the vast number of ICO projects that turned out to be a complete scam, with statistics showing that more than half of the ICO projects were not doing business in an ethical manner.
The main reasons for asset tokenization is the enhanced liquidity. The tokenized securities` liquidity allows for tremendous enhancement of value of a whole set of securities. It makes also explicit the price of the tokenized shares or stocks. It is a time-saving and easy-to-complete process in terms of purchasing, selling, and exchanging. Prior to the launch of the blockchain technology, the level of assets liquidity was relatively low, because of the sluggishness of conventional asset trading and waiting times for transaction verifications. Stocks and bonds are often purchased through intermediaries like brokers and banks, further delaying the full completion of a transaction.
Despite the fact that tokenized securities offer an additional layer of security compared to standard tokens, a real challenge for the market remains the regulation of tokenized assets. Governing bodies across the globe are striving to introduce standardization methods for control and clear and cohesive frameworks. The law compliance remains an issue, although there is a clear indication that with the evolvement of the market, the regulations and standardization methods will continue to grow in number.
The Canton of Ticino, Lugano is a pioneer in that respect as its commercial register approved finely-worded application and articles of association filed by Prof. Mauro Andriotto on behalf of a client to have its common shares issued on the Ethereum blockchain and the shareholder book kept on the blockchain as well. This is the first ever worldwide inscription of tokenized securities into an official register. From this moment onwards the general rules for shares and bond as per Swiss law apply with the added benefits of access and liquidity.
Tokenized securities are made publicly available via a Security Token Offering (STO). EDSX`s tokenized securities are currently available to the mass public at EDSX offering real shares of existing businesses to the global market.