Security Token news for Week Ending Friday 13 March 2020

Security Token news for Week Ending Friday 6 March 2020

Here is our pick of the 3 most important Security Tokens news stories during the week:

Security tokens, blockchain settlement draw interest from institutions: MIT conference panel

“Investors and participants are hungry for transparency in the space, and blockchain promises more transparency,” Kokoshi said. Coupled with the self-executing capability of smart contracts and the promise of lower costs, the technology is very enticing for issuers of security tokens…Lucas Nuzzi, network data product manager at Coin Metrics, agreed with Kokoshi’s assessment and highlighted security tokens as a “high point of interest” for institutions… there’s a lot of demand on the institutional side of things to explore…public blockchains like Ethereum as another backend for their services.”

Why it matters: At an MIT conference in Boston last week, Ada Kokoshi of State Street Corporation ($2.5T assets under management) declared the transparency of blockchain is ushering in the adoption of security tokens by issuers and institutional investors. Kokoshi judges the prime mover to be the crypto ecosystem’s ability to integrate with legacy systems to create efficiencies of speed, accuracy and lower costs. 

Morningstar Rates First Ethereum Security In $40 Million Fatburger Deal

“Fatburger just got a little more juicy thanks to a historic $40 million capital infusion that not only involved securities issued on ethereum, but marks the first time investment ratings giant DBRS Morningstar rated securities issued on a blockchain. While the rating itself is on a traditional paper debt security that closed on Friday, Morningstar cited faster access to data about the securities as a result of the increased transparency from using ethereum in its rating document, paving the way for a more pure class of crypto-assets native to the blockchain.”

Why it matters: California fast food franchiser, FatBurger, raised $40 million in debt from investors, issuing securities on the ethereum blockchain. Transactions will be effected by conventional means, and recorded on the ethereum blockchain as “digital representations” of ownership, with the issued blockchain security tokens an outside, parallel record that does not govern operation of transactions. Even though the blockchain token parallel does not govern, significantly it is being cited by DBRS Morningstar as beneficial in transparency for investors. This is the first time DBRS Morningstar has rated a security based on distributed ledger technology (even as a parallel system). Distributed ledger technology, by decentralizing and encrypting the storage of information via blockchain, insures the reliability of data, at increased speed and lower cost.

New York-based Cadence, the digital security advisor for the financing, will manage the ethereum blockchain token processes.  Cadence is backed by an impressive list of investors including Argo, Coinbase, Fantail Ventures, and several Chinese investors.

France’s Financial Markets Authority (AMF) has proposed that all of Europe adopt a regulatory “sandbox” to support the emerging security token industry

“The proposal is from Europe’s most reliably pro-blockchain financial regulators. AMF has consistently advocated a forward-thinking approach to blockchain and distributed ledger technology for years, approving initial coin offeringsdrafting blockchain bills and releasing experimental frameworks for crypto firms to regulate themselves. 

‘These frameworks were designed to frame centralized market infrastructures,’ AMF President Robert Ophèle said in a speech. He explained that ‘they are not suited to the decentralized nature of the blockchain environment” and therefore render many projects almost unprofitable…We are faced with a chicken and egg paradox. The space cannot develop under the current framework, but without documentation new frameworks cannot evolve either.’ ”

Why it matters: AMF this week proposed a regulatory “sandbox” to support the emerging security token industry.  The sandbox, or “Digital Lab” proposal calls for a three-year exemption period to provide data and feedback to assist regulators in understanding risks and innovation associated with decentralized blockchain infrastructures and security tokens in order to develop new, more flexible regulation. It remains to be seen how other continental financial regulators will react to AMF’s latest recommendation.

We have a self-imposed constraint of 3 news stories each week because we serve busy senior leaders in Fintech who need just enough information to get on with their job.

For context on Security Tokens please read the chapter on Security Tokens in our Blockchain Economy book and read articles tagged Security Tokens in our archives. 

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