Security Token Group: Wall Street Is Coming Out

Our Chief Editor could not pass the company with this name. Security Token Group is an organization dedicated to helping enterprises, fund directors and investors access and utilize security tokens. Read below the interview of Mario Pazos, the
Founding Partner at Security Token Group by Leo Petersen-Khmelnitski, Chief Editor of the Security Token Newspaper:

Question: When I tell people what a security token is about, most have never even heard of a security token. How do you explain to them what it is?

Security Tokens are nothing more than a digital representation of an asset that could be equity, debt, real estate, art, etc. These new instruments are now possible due to the application of distributed ledger technologies (DLT) like Blockchain and smart contracts. For the first time in history we can know transfer value over the Internet and create a digital representation of real ownership.

Question: Among the classic benefits of tokenization – unlocking liquidity, increasing transparency, creating new value – which one do you find most important now? In 5 years?

In the next 5 years we are going to see different assets classes being tokenized to create an immutable digital representation of a security that will be have the characteristics of being open, transparent and transferable. This will enable significant efficiencies in things like cap table management, dividend distribution, custodianship and others. The demand for these assets and their respectively liquidity are not going to significantly change just because an asset is tokenized and transferable. There will be a liquidity premium but this is applicable for the assets that are inherently attractive investments regardless of the fact that they are tokenized. As the industry matures we expect the traditional players in the capital markets will adapt this technology and therefore bring it to mainstream unlocking the power of Security Tokens.

Question: How do you see this market function in 1 year from now, 3, 5 years? What new structures do you envisage? What is your assessment of the size?

We are in the early days. The infrastructure for Security Tokens is being built as we speak (Exchanges, Custodians, Issuing Platforms, Investment Banks, Broker Dealers, etc.). This will be a multiyear approach and therefore we expect the next 2 years to be the infrastructure years. Security Tokens will eat up not only the private markets but the public market as well and therefore the market size is in the trillions of dollars in the years to come. It is not a matter of if it happens but when will it happen. If NASDAQ and the NYSE adopt this technology within this year we will see an exponential growth in projects using Security Tokens. We know they are looking at the space and working with this technology already. Other major exchanges in the world are also actively looking at the space and they all want to have first movers advantage in the usage of DLT within their platforms.

Question: Do you think many more new players will enter or more partnerships formed among the existing players?

I envision a very active M&A market in 2020 from traditional incumbents having to add this technology within their portfolio and going shopping for the players that were able to position themselves as leaders in the space. None of the current players are properly capitalized to compete against the Nasdaq’s of the world. Therefore they are trying to run as fast as they can, prove they have product-market fit and look for an exit. Wall Street is coming and it will legitimize the space.

Question: Can you describe your typical client as of now?

Within Security Token Group we have 2 operating companies: Security Token Advisors (STA) and Security Token Market (STM)

For STA, our consulting firm, our ideal client is an issuer that is looking to tokenize their assets in order to take advantage of new efficiencies or an issuer that is looking to launch an STO as an instrument to raise capital.

For STM, our intention is to become the “Yahoo Finance” for STO’s and therefore we would like become the largest repository of STO’s around the World as long as they are legitimate.

For STM, our STO repository, our ideal user is an interested investor in the space and our ideal client is an issuer looking to build awareness for their security token.

Question: How does your cooperation with new clients function?

Our clients get a personalized attention from our consultants to make sure they get from us the right guidance to tokenize their asset, help them conduct a Security Token Offering (STO), strategize on securitization techniques or explore custom projects. We not only guide them through the entire process but we also connect our clients with a vetted network of partners located all over the world.

Question: What do the clients get in result of your work?

We believe in giving our clients comfort and confidence when it comes to taking advantage of this brand new technology called security tokens. Our clients aren’t just one off-engagements, but long term relationships that lead to value add from STG and its partners for years to come.

Question: Do you believe everything may be tokenized? What cannot be tokenized?

In the financial markets, any valuable asset could be tokenized conceptually. In reality, the first tokenizations are going to be digital representations of traditional financial instruments like shares, loans, corporate bonds, ETF’s, mutual funds, asset back securities and others. It is really hard to imagine the many other financial assets that would be tokenized but we should expect investment bankers and consulting firms starting to explore tokenizing account receivables, goodwill, intellectual property, gross profit, and pretty much any line item on the balance sheet or revenue line in the P&L.