09 Feb Securities tokens set to have banner 2023
The year 2022 saw many of the pieces of the Security Token (STO) puzzle start to fall into place; investable assets, issuance technology, and most importantly, commercially viable regulatory frameworks.
This sets the stage for an exciting 2023 for both Bitfinex Securities and the STO markets more broadly.
We believe Security Tokens represent the next generation of capital markets. By matching the technology of the digital asset industry with clearly defined issuer obligations, investor protection, and regulatory oversight, STOs offer investors and issuers a faster, cheaper, and lower friction way to invest, raise capital, and trade. Today, you can issue a security token at a quarter of the cost of an IPO, and in much smaller size, with even $5million or less raises possible. In addition, while IPO preparation can take the best part of a year, STOs can come to market in just months, and we expect that to come down significantly over time.
Over the coming quarters, as more high-quality assets come to market, we see the technological advantages afforded by STOs as a major pull factor for mainstream institutional investors. Technological and operational advantages that digital asset traders have already become accustomed to like real-time settlement and 24/7/365 trading represent a radical upgrade to the way securities are currently traded and allow investors more control over how they manage capital and risk. Why limit yourself to trading just five days a week when you can manage your risk and exposure each and every day?
We also see STOs as a means to foster global financial inclusion, which is very much in line with the Bitfinex vision to accelerate a transition to a more open and fair world. STOs offer the opportunity for all investors to access high-quality investment opportunities, where in traditional markets access is not so equal. Even ignoring friction points like accredited and foreign investment restrictions, many investors are essentially walled off from participation in private equity, fixed income, overseas public equity, and alternative assets.
Issuers often face similar challenges. We see silos of companies and investment opportunities in Central Asia, Africa and Latin America that are under-served by traditional investment banks and struggle with access to capital markets. They are in their own way also unbanked. The STO market offers issuers the opportunity to tap into a new non-traditional investor pool, that is today worth over $1 trillion, and very comfortable with investing in digital assets.
Tokenized securities represent an opportunity beyond lower issuing costs and broader market access, though. Tokenized securities also allow investors greater flexibility and control over their assets. Technologies like the Liquid Network, allow Bitfinex Securities to strike a balance between regulatory obligations and freedom of use by investors.
In 2022, Bitfinex Securities was the first exchange to list the Blockstream Mining Note, an important proof of concept for the entire industry. By issuing the BMN as a transfer-restricted asset, whitelisted users are able to withdraw, self-custody, move assets between exchanges, and even trade securities peer to peer; a degree of flexibility not possible in legacy security markets.
In 2023, Bitfinex Securities will expand its presence in Kazakhstan’s Astana International Financial Center (AIFC) by establishing a dedicated office and adding domestic headcount. We see the advent of digital assets as a generational opportunity for regulators and policymakers willing to embrace technological change and consider how these technologies can be regulated appropriately.
In this regard, we have developed a strong relationship with our regulator, the Astana Financial Services Authority (AFSA), and we are keen to demonstrate how upgraded capital markets can be accretive to the domestic economy. Today, banking and financial services account for a relatively small portion of GDP across Central Asia. Growing that part of the economy to levels seen in North America or Europe would not only mean billions of dollars in contribution to GDP but would also have ripple effects across the broader economy as domestic companies get better access to global capital markets.
Bitfinex Securities is also actively exploring new jurisdictions, such as El Salvador which is in the process of developing a new legal regime for digital asset service providers and issuers, as well as other locations as opportunities present themselves. We hope our success in the AIFC can be replicated in other jurisdictions as we grow.
Much of 2022 was dedicated to building the regulatory, operational and technological infrastructure necessary to bring high-quality assets to market. We’ve spent the last twelve months building out a robust pipeline of tokenized securities from both traditional and digital asset-focused sectors. We look forward to an exciting 2023, where we will continue to support technologies and processes supportive of financial freedom and look to bring more high-quality equity, debt, and fund offerings to market.