Peter Gaffney, the Head of Research from Security Token Advisors, notes that a security token investor is an “interesting blend” of what exists in the markets today.
Gaffney pointed out that it is not necessarily someone “fully fixated” on decentralization or four-digit yields. But it’s also not necessarily someone “interested in generating 4% annually that could be achieved elsewhere.”
He added that it is vital that issuers of security token offerings understand the market in which they “seek traction” — essentially, “a blend of cryptocurrency and real asset investors.”
Gaffney also notes that many security token enthusiasts understand that tokenization “is only plausible via all the blockchain progress that has engulfed the markets over the past decade, with an emphasis on the past 3 years.”
Firms such as PGIM, KPMG, and Fidelity have been looking into tokenization since 2018. While the infrastructure likely wasn’t quite capable at that time (and the extended crypto bear market negatively impacted tokenization for awhile), the use case of blockchain or distributed ledger tech (DLT) for security tokens was nonetheless expected to grow considerably.
According to Daffney:
“That is important to understand and to absorb because “crypto people” are one class of investors who follow security tokens. They understand the nature of the underlying blockchains but also wish to grab some intrinsic value that can be found within the assets that back security tokens. This asset-backed feature enables investors to tap into true value rather than banking on network effects and growth of the underlying blockchains. It is simply another “safer” avenue.”
He adds:
On the other side of the coin (but on the same coin, nonetheless) are the traditional investors who heavily desire intrinsic value within their investments. Investing in blockchains directly via utility tokens may be a bit too intangible for this investor class’ taste. Instead, this class particularly loves the concept of fractionalization and real-time liquidity for their pre-existing and comparable investments (i.e. real estate, illiquid funds, stocks, ETFs, and other tradable baskets).
He also mentioned that the only thing “crypto” about security tokens to this investor class is “the fact that the wrappers are blockchain-based.” As general cryptocurrency prices fluctuate, security tokens should “theoretically be unaffected given they are backed by real assets and not by supply and demand of an underlying blockchain such as ETH, ALGO, AVAX, or SOL.”
He also noted:
“Successful security token issuers must study the market landscape before issuing tokens, as seeing comparable token offerings will help when structuring the “tokenomics” of the asset offering. Ensuring a unique and proper blend of features for both “crypto people” and traditional investors will likely lead to the sweet spot necessary to fully-subscribe an offering.”
To review this extensive update from the Security Token Market team, check here.