Stock Exchanges, Security Tokens and Capital Formation

Finadium
January 2019

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Stock exchange listings in many major economies are falling: it is often easier for companies to stay private or be acquired than to list on an exchange, and large companies have grown even larger at the expense of smaller competitors. While stock exchanges still deliver their basic functions of capital formation through the IPO process and price discovery in secondary trading, there may be less demand for these services going forward. A reduction in capital formation is especially problematic for national economies: while this activity can happen in other ways, exchanges publicize IPOs leading to greater attention and liquidity for traded companies.

Having worked through the Internet Coin Offering product cycle, crypto enthusiasts are now exploring Security Token Offerings (STOs) as the next possible mechanism for connecting the decentralized power of the blockchain with the ability to raise capital as one off-exchange alternative for capital formation. While STOs are still in early stages, the regulated nature of the product lends itself to stock exchange adoption.

This report explores the areas where stock exchanges are getting serious about digital asset platforms for capital formation and secondary trading. STOs represent a new opportunity that may prove sustainable for both the cryptosecurities market and exchanges alike. This report should be read by exchanges and market infrastructures in both the traditional securities and digital asset industries.

Table of Contents

  • Executive Summary
  • The Economic Function of Exchanges
  • Hype vs Opportunity in STOs
    • – How Many Security Tokens Are There?
    • – The Institutional Investor View
  • Stock Exchanges and Cryptosecurities
    • – How STOs Fit the Stock Exchange Model
  • Long Term Liquidity Generation
  • About the Author
  • About Finadium LLC
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