A guide through Security Token Offerings (STO) — part 1: key benefits

Intro: Tokenization of assets / securities

Tokenization is based on distributed ledger technology (DLT) of which blockchain technology is the most prominent option. In recent years, these promising technologies and its adaptions into practice have continuously evolved. The knowledge among academics as well as practitioners has grown continuously, and several use cases have been developed and tested. After a first phase of initial coin offerings (ICO) that sometimes led to disappointment among market participants, a new era of tokenization seems to be evolving. Instead of tokenizing utility rights the focus now lies on assets and securities. This results for example in equity or debt tokens, which represent traditional financial instruments but are wrapped in a new, decentralised and (more than ever) digitalised form.

A figure that shows three kind of conversions from “traditional” to “digital” assets by tokenization.
Evolution of digital assets — security tokens

Part 1: The key benefits of tokenizing assets / securities

In the beginning of the evolution of digital assets the expected marketing effect was often one of the drivers for a tokenization. However, this effect has recently decreased. Fundamentally, the main benefits of tokenization are directly linked to the advantages of distributed ledger technology (DLT). This is why efficiency gains, higher liquidity and more transparency are probably among the most recited benefits of tokenization of assets and securities. While all these three factors make sense from a high level perspective, it is important to take a closer look on what exactly they mean.

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Pascal Egloff

Pascal Egloff

Lecturer / Project Manager for Banking & Finance