Introduction
Probably one of the innovations emerging in this new wave of digital finance is the securitization or trading of assets in blockchain platforms with a modern method of holding ownership rights. These can be equities, bonds, and broader even illiquid assets like real estate, art, etc.
The role of traditional intermediaries, which in the past took the form of banks and brokerages that have provided intermediary services for centuries, is given up in blockchain-based transaction systems. Blockchain technology introduces secure, transparent, and efficient transactions in tokenized securities.
The impact on fundraising is very significant in that tokenized securities will result in more liquidity and more accessible capital, lower costs-much more attractive for the issuer, as well as the investor. This technology may mature and change global financial markets.
Tokenized securities
Tokenized securities are the process of digital rights to ownership of an asset being issued as a digital token on the blockchain. This can also represent a very wide variety of financial assets, for instance, equities, bonds, investment funds, and even ownership in illiquid assets such as real estate or fine art.
Relatively easy for trading on blockchains, which lowers entry barriers into markets: This would mean investors could buy and sell tokens representing ownership rights of assets without any more reliance on the traditional intermediaries, such as banks, brokerages, and clearinghouses, that currently play a role in the issuance and trading of securities.
Ownership rights can also be represented by a token which can also be subdivided and traded with all the trades and ownership recorded on a blockchain system. The distributed ledger technology supplants third-party recordkeepers and is developed specifically for cryptocurrencies. Blockchain technology runs complex algorithms with the aim of actually maintaining a ledger of transactions and validating ownership. Of the tokens mentioned above, blockchain-based tokens are created using security token offerings and supported by tangible securities. Regulated in the jurisdiction within which they are offered, cryptocurrencies are not covered in the above.
Impact of Tokenized Securities on Fundraising
Increased liquidity: Tokenization will permit fractional ownership in assets, thus making it easy for investors to buy and sell small tracts of securities. Moreover, tokenization increases investor and issuer flexibility in raising capital while maximizing the pool of potential investors.
Greater access to capital: Regular fundraises are associated with certain types of obstructions-large central institutions or regulatory obstacles that can limit access to certain markets. This is removed by tokenized securities, where companies raise funds directly from a worldwide pool of investors through the use of blockchain technology.
Reduced cost: This eliminates the need for middleman like brokers or banks and reduces the cost significantly compared to a traditional transaction. Using smart contracts and decentralized platforms enables the efficient and low-cost raising of funds for any business.
Transparency and Security: A very high level of transparency and security is promoted over transactions regarding tokenized securities through blockchain technology. Easy verification of ownership and tracing of a transaction on the public ledger decrease the risks of fraud and improve confidence among investors.
Regulatory compliance: Even though there is decentralization, there are designs on how to put up tokenized securities as aligned with prevailing security laws. That way, they stand out to become much more attractive and mainstream for traditional investors and institutions. Regulation like STOs provide for a structured environment when issuing tokens and are in consonance with existing law on securities.
Improved fundraising efficiency: Tokenized securities make the process very easy in terms of fundraising because a lot of the administrative functions can be automated using smart contracts. This allows saving time and effort while issuing and managing securities in order for a business to focus on growing and expanding.
The future of Tokenized Securities
The future of tokenized securities appears promising because its use would eventually displace the current mode of transaction and account for a large share of GDP globally. However, significant investment in technology and changes in the regulatory framework are needed to effect the change. The service providers that may be displaced will have new ones rise and manage the risks associated with their provision.
Conclusion
Tokenized securities change the face of fundraising entirely: more liquid, more accessible, and more efficient for issuers and investors. While challenges do not exist from a regulatory and technological perspective, democratizing access to capital and further successful fundraising globally for companies, but especially now for startups and growth-stage businesses, will surely increase as the ecosystem matures.