BlockShow research: Security Tokens and Stable Coins are the stars of 2018
BlockShow research: Security Tokens and Stable Coins are the stars of 2018

BlockShow research: Security Tokens and Stable Coins are the stars of 2018

By Fabio Lugano - 21 Nov 2018

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A research published by BlockShow in 2018 has shown that the evolution of the cryptocurrency and blockchain world is going in the direction of security tokens, STOs (Security Token Offerings) and stable coins.

2017 was the year of ICOs and utility tokens, i.e. tools with which new activities were financed with completely new forms of participation.

In 2018, however, these instruments revealed their weakness, both because of the very high volatility of these values, and because many projects have not come to an end, thus creating distrust, which is also certainly one of the causes of the current decline in the values of cryptocurrencies.

At this point, space opens up for security tokens, i.e. digitized representations of shares or ordinary debt securities on blockchain.

Security is a term used by the SEC, the American control body, to indicate those real rights that fall under its control according to the famous Howey test, that is, those cases in which:

  • there is an investment of money;
  • there is an expectation of profit;
  • there is an entrepreneurial activity;
  • the income does not derive from the work of the investing party.

So far there has been much reluctance to issue security tokens because they would fall under the control of the SEC, which imposes information obligations on issuing companies, including the famous “Form S1“.

On the positive side, these security systems exist both on and off chain, with a great emphasis placed by the infrastructure that is used for tokenization, such as Polymath, Securitize, Republic, Openfinance Network and many others with different modes of operation and different levels of authorization.

With STs it is possible to launch STOs, i.e. security token offerings: in this case the basic infrastructure must also be able to make the initial offer in an adequate manner from the point of view of regulation and financial marketing, but these are solutions that have not yet become established precisely because of the uncertainty of the regulations surrounding ICOs.

The connection between the world of STOs and that of cryptocurrencies is formed by stable coins, which are cryptocurrencies with values pegged to the reference value and which are essentially based on two mechanisms: the possession of reserves, in a complete or fractional way, of the underlying reference, or the creation of monetary stabilization algorithms.

If a currency with reserve must be centralized during the issuance since it is linked to current accounts or deposits of ordinary currencies, the second group can still enjoy the advantage of decentralization.

Fabio Lugano

Graduated with honors from Bocconi University, Fabio is a consultant for companies and wounded shareholders of the Banche Venete. He is also the author of "Scenari Economici", and lecturer and analyst of cryptocurrencies since 2016.

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