We are pleased to welcome Matthew Graham for our weekly Interview on Security Tokens. Matthew is the CEO of Sino Global Capital and Managing Partner of Liquid Value.
Tell us how you are involved in the Security token space?
Our company, Sino Global Capital, has been active in the blockchain space for some time. Recently, we founded a new venture, Liquid Value, that focuses on servicing the STO market. For companies who want to access capital via an STO, it can be very confusing. Who do I talk to first? How do I tokenize an offchain asset? What regulations do I need to adhere to? Liquid Value solves those problems by providing end-to-end advisory services and support for these companies. Thus far, we’ve seen interest not only from fintech companies and those well versed in the benefits of blockchain, but also from non-tech companies that are simply seeking efficient ways to access capital pools.
Right now, many say that the STO ecosystem is not mature. Do you agree and how do you see that ecosystem maturing?
Great question, I agree that the STO ecosystem is not yet mature. The lack of maturity is most easily illustrated by the numerous security token standards (ST 20, R standard, etc.) that exist. These standards all create security tokens that interact with other parts of the ecosystem differently (ex. exchanges, compliance, life-cycle management, ownership).
As the ecosystem continues to mature, I think you’ll see more and more agreement on how security tokens should interact with the rest of the participants. More and more agreement will lead to more standardization. Standardization will lead to a more widely accepted security token standard and network effects. This organic evolution will ultimately create more interoperability among participants and lead to more mainstream adoption.
Beyond security token standards, exchanges are a vital part of the ecosystem that has yet to fully develop, although there are exciting developments forthcoming. For example, last month the tZERO security token trading platform had a successful launch. A huge step for the security token market and one that could serve as a catalyst for the security token ecosystem. Personally, I’m very excited!
At what point do you think we will see institutional entrants into the Security Token ecosystem?
I think there are a few catalysts that could bring institutional players into the ecosystem. First, I think continued clarity on regulation is a must. Second, from an investment standpoint, institutions are likely to buy instruments they are familiar with and that are lower on the risk spectrum. Right now, most security tokens are digitizing equity and are “equity tokens”. Debt tokens, however, may represent an easier entry point for new participants. For one, the market size of debt is potentially greater, and, in addition to lower risk versus equity, debt instruments are more standardized across different markets. Finally, the benefits of security tokens need to be more readily apparent. Right now, liquidity is often cited as a main benefit and I think this benefit will be more defined as more exchanges come online. Compliance is another benefit. In general, there needs to be more use cases that show real world value.
Once value is shown, large institutions will need to enter the space in order to future proof their value proposition going forward. Think about traditional exchanges for example. If security tokens show value and gain in popularity, they will need to enter the ecosystem through internal innovation and/or acquisitions.