How Security Tokens Can Prevent an Impending Financial Crisis

An investigation of the systemic weaknesses that led to the crisis points to the promise of a new financial instrument that has entered the market - tokenized securities.

Security tokensSecurity tokens serve as digital representations of any other tradable financial asset, including equity shares of companies, interests in funds, contracts entitled to a specific slice of future revenue streams, ownership of intellectual property, fractional ownership of real estate and other physical assets, and derivatives themselves.

Security tokens can be regulated and effectively managed, making it easy to form capital and setting the stage for a reformed financial service infrastructure.

As we reflect on the 10-year anniversary of the 2008 crisis and try to understand the disruption to global supply chains in a new environment of trade wars, it is important to analyze the fundamental problems that led us down this path of economic turmoil and why security tokens can help stave off future financial disasters.

The beginning of the endBy September 2008, the $2 trillion RMBS market collapsed and sent a ripple through the balance sheets of most major financial institutions in the U.S. and abroad. This resulted in a global crisis of liquidity, as both debt and equity markets froze.

Many analysts predict that the majority of financial products will one day be traded on the blockchain as security tokens, with programmable smart contracts - and for good reason: Only security tokens can bring greater transparency, oversight, access and liquidity to the market.

Even more profoundly, tokenized securities can provide the basis for a reformed financial service infrastructure that addresses each of the structural weaknesses that led to the global financial crisis.

Clarity around how more complex instruments have been pooled, broken up into tranches, rated - and by whom and when - directly for both the investor and the regulator, who are able to track the lifecycle of the asset, security or financial instrument.

Decentralized ratings: As a result of the transparency of security tokens, many entities are emerging with competing technologies to rate the value and viability of offerings in the security token industry.

Liquidity at all market levels: Security token platforms provide seamless market access and dramatically reduce the cost of compliance and reporting.