Security token exchange development: Gaining worldwide acceptance
Many investors and property owners are now marching towards various fundraising activities to raise funds for their ideas. Blockchain crowdfunding has become a widely used practice to raise the funds from a large group of people, with each participant contributing a significant amount, typically via the internet. Blockchain crowdfunding is the most prevalent method of raising funds in the crypto market.
Blockchain crowdfunding covers mainly two major sets, including:
- Initial Coin Offering
- Security Token Offering
Initial Coin Offering is a cryptocurrency space where coins/tokens are launched and interested investors would invest in the offering. In return, an investor gets a new cryptocurrency token. ICOs experienced the hike till 2017, but gradually scams started pouring in which affected its credibility.
Hence, for a secured crowdfunding strategy, Security Tokens Offerings (STOs) came into force.
Security Tokens — Ruling the World
Security Token Offerings have gained a continuous momentum since 2018. According to a report by Inwara, 14, 26, 25 and 20 STOs were being launched in Q1, Q2, Q3 and Q4 of 2018 respectively. In Q1 of 2019, 47 STOs were launched. The exponential rise in the launch of STOs in the market creates a simultaneous demand for security token exchange development.
Countries leading in STO development and launch:
- United States — 11
- United Kingdom — 8
- Switzerland — 4
Industries leading in STO development and launch:
- Finance Sector — 6 STOs
- Energy Sector — 6 STOs
- Healthcare — 5 STOs
- Trading and Investing — 7 STOs
The regulatory bodies are in favor of Security Token Offerings, with US Securities and Exchange Commission (SEC) imposing regulations on crypto exchanges and ICOs.
What are Security Token Exchanges? Why is it essential to have one?
Security token exchanges, which fall under the bracket of Alternative Trading System (ATS), are the platforms where buying and selling of security tokens are initiated. As STOs have emerged as a reliable method of the fundraising, the demand for security token exchange development is also increasing.
The Alternative Trading System (ATS) matches the buyers and sellers to find counterparties and serve as a broker-dealer relationship rather than an exchange. Security Token Exchange requires ATS license, which needs the approval from the SEC.
Features of Security Token Exchanges are:
- Multiple Currency Trading: With many cryptocurrencies floating in the market, majorly Bitcoin, Ethereum, Litecoins etc. Security token exchanges should be well integrated with various cryptocurrencies.
- Multi-Language Support: The main focus of STO is to encourage the worldwide investors to come forward. So the Security Token Exchange should also support various languages to provide ease to the traders.
- Wallet Integration: The security tokens need to be placed in a certain wallet. Wallets need to be embedded in a security token exchange, just like any other cryptocurrency exchange.
- Order Matching: The matching engine pairs the order between buyers and sellers of security token exchange instantly in the market place.
- Escrow System: The trading between the buyer and seller are exchanges through a system of smart contracts, which efficiently processes the transactions.
Now, let’s further have a look at the list of countries who are taking a first mover advantage to harness the potential benefits.
Top Countries to set up Security Token Exchanges
By now you must be well versed with the viability of the security token exchanges. Let us further comprehend which countries are friendly to STO exchanges because being a businessman it is crucial to consider this aspect.
Malta: Malta is known as the world’s first Blockchain Island due to its much hype for the Blockchain Technology. The regulators in Malta are favorable to the FinTech industry. There exists a huge potential in Malta as the experts are eager to enter this region.
Estonia: Located in the Northern Hemisphere with favorable legal considerations for crypto exchanges, Estonia is considered the best country for the launch of security token exchange. Comistar Estonia, a security token exchange, was launched last year for the entire European region.
Switzerland: Switzerland is called “crypto valley” and is a huge hub for cryptocurrencies. The launch of a greater number of security token exchanges can be anticipated in this region in the near future.
Dubai: Dubai is a financial hub where all technology-related aspects are first to be considered. The country issued a state-backed cryptocurrency in October 2017. In February 2019, the Dubai Multi Commodities Centre (DMCC) got the ball rolling for the promotion of cryptocurrencies. Thus, Dubai is a major prospect for the development of Security Token Exchange Platforms.
Canada: In February 2019, the Canadian Securities Exchange declared their plan to launch a security token exchange, thus making the country a potential region for investing for entrepreneurs.
Security tokens have proved their vitality in the current space. Although security tokens are still in the developing stage, things are moving faster than expected. As the number of security tokens increase, there will be an increasing need for security token exchange development to have an ATS in place to allow the exchange of security tokens.