Finadium: Stock Exchanges, Security Tokens and Capital Formation

Stock exchange complexes have an opportunity to enter and control the Security Token Offering (STO) space, which would at once provide a new mechanism for capital formation and support often struggling small and medium listings platforms. This report explores recent stock exchange actions in digital assets, the realities and hype of STOs and where compelling opportunities can lie ahead.

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 (ICO) 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. 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.

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