Who Will Win the Trillion-Dollar Security Token Trading Race?

Executive Summary
Security tokens are inevitably gaining mainstream adoption, as institutional presence on the crypto market reaches unprecedented levels
Wall Street money is looking to invest in compliant, successful businesses and teams that fit into existing investment models
We are entering the finals of the competition between exchanges to provide compliant securities trading on the blockchain which promises to dwarf by size and volume everything seen in crypto thus far
Winning the race will define the exchange landscape for the foreseeable future
While regulators across multiple jurisdictions are stepping up their efforts to increase oversight on the crypto space, the industry is evolving at a breakneck pace. The amount of VC funding in the blockchain industry has more than doubled in comparison with 2017, data by Coindesk shows. Despite businesses raising billions of dollars through ICOs, and a vital infrastructure layer of security exchanges shaping up, the market has largely been dominated by individual investors and nimble boutique funds. Institutions have mostly remained on the sidelines.

Until now.
We are witnessing persistent evidence that what was once only rumors about Wall Street capitals waiting to flow into the market, is now starting to materialize.

Hedge funds, pension plans and other collective investment schemes are increasingly shifting their focus to the space, drawn by a maturing market, security token proliferation and the advent of licensed marketplaces designed for the efficient trade of such assets.
Impressive Growth Opportunities
Large institutions have been seeking exposure to the exciting prospect of the crypto space through innovate FinTechs, blockchain-focused investment vehicles,“infrastructure” and other high-potential investments.

They are lured by increasing transparency and stability in an industry, just a few years ago considered a playground reserved for tech geeks. While an institution-friendly environment is an important prerequisite for the heavyweights to jump on the crypto bandwagon, the real bait has been, no doubt, the impressive growth opportunities and returns that the industry offers.

Take Binance for example. For a little under a year, it went from one of many ICO projects, raising a modest $15 million, to the world’s leading exchange which has recently surpassed the once revered market wizards of Deutsche Bank in profitability.

Another great instance is Bitmain. The largest crypto mining company in the world reportedly generated a net profit of more than $1.2 billion in just three months, ahead of an expected Initial Public Offering. It is now attracting serious capitals from traditional Wall Street players. Once listed on an exchange, Bitmain shares will offer interesting indirect exposure to crypto for everyday investors with no background in crypto through their accounts at Charles Schwab.

Trillion-Dollar Market
This rise in activity has further spurred investor interest, setting the industry on an irreversible course to the trillion-dollar mark that some experts conservatively forecast for the equity token market in the next few years. More aggressive projections suggest that security tokens volume might grow to $8 trillion by 2024, which would be almost twice the GDP of Japan.

This has created strong financial imperatives for the growth of security tokens, further cementing their position as the only viable crypto instrument capable of generating a sustained institutional investment interest.

Security Token Exchanges
Before a full-blown institutional expansion in the crypto industry, enterprise infrastructure with the relevant crucial layers needs to become as reliable and pervasive as it is in traditional finance. This is an ongoing development which is already shaping up the next stage of the industry.

Almost all of the most important players, anyone from Coinbase to Binance, OKEx, traditional markets like NASDAQ and NYSE, and even government authorities, have pitched in with projects vying for the leading spot in the security trading space.
Binance has recently partnered with the Malta Stock Exchange, and with blockchain-powered equity fundraising platform Neufund, to create the first regulated decentralized global stock exchange. The partnership aims to become “the first end-to-end primary issuance platform for security tokens, in particular, equity tokens,” it said in a blog post announcing the partnership. As part of the project, Binance will work on building an exchange enabling the trade of security tokens, including equity tokens.

In a related project, Malta Stock Exchange has a joint initiative with another digital asset exchange, Hong Kong-based OKEx, to build a security tokens trading platform.

Amidst contradicting report about its compliance regarding its ability to trade tokenized securities, Coinbase has also demonstrated serious intentions to get in the game.

Swiss stock exchange (SIX) became the latest in a long line of companies announcing projects in the digital asset trading domain. In July 2018, SIX unveiled plans to launch “a fully integrated digital asset trading, settlement, and custody service.”

Earlier in May 2018, the operator of the Boston Stock Exchange said it had partnered up with Overstock subsidiary tZero “to launch the world’s first regulated security token exchange.” tZero recently closed an investment round giving it a $1.5 billion evaluation and prompting its CEO Saum Noursalehi to say” “The tokenization of securities has the potential to disrupt global capital markets responsible for moving hundreds of trillions of dollars. Together with our partners, we will globalize our blockchain-based platform, bringing more efficiency, liquidity, and trust to capital markets.”

NASDAQ has also said it was open to trading crypto assets once the market matures and had previously hinted at the possibility of launching its own bitcoin ETF trading service.

Recently, US cryptocurrency exchange Bittrex announced a partnership with next-generation alternative trading system (ATS) Rialto Trading to offer a compliant “innovative digital securities trading platform”. The companies target to attract institutional investors, corporations and U.S.-registered broker-dealers, among others, interested in trading digital securities.

Earlier in 2018, US SharesPost, which runs a private company investment platform, announced the launch of an alternative trading system (ATS) for the secondary trading of security tokens. At the same time, New York-based Templum raised $10 million from Japanese financial conglomerate SBI Group for its institutional crypto trading platform. It had previously acquired broker-dealer and ATS Liquid M Capital, which enables users to trade crypto securities compliantly. Templum’s ambition is to become “the leading regulatory compliant platform for tokenized asset offerings.”

“Apple of Crypto”
These and other projects add to a complex alphabet soup of trading and custodial initiatives that characterize this early stage of the market, begging the question: “what does it take to be able to dominate in the space going forward?”

Undoubtedly, if any one of the above institutions manages to take the lead, it runs the chance of becoming the “Apple of crypto” and claim the lion’s share of what many expect to grow into a multi-trillion dollar industry.
With a plethora of projects for licensed security token exchanges expected to hit the market in the near future, only a selected few have the potential to take the center stage and enjoy a first-mover advantage. The competition will be as much around speed to market, as it will be around robustness, security and investor appeal.

The more the merrier
One thing is clear, though: for Nexo, the largest security token issuer by market cap, and for the entire crypto community, an increased number of challengers will invariably lead to more institutional focus, better products and, ultimately, move the entire industry forward and a step closer to the proverbial trillion-dollar mark.

The winner then will be the whole blockchain community.

Where would you place your bets?