Newsletter #10- Week Ending September 13th

This week, we’re talking regulatory clarity of digital securities and security tokens, consensus on data and how one company is going to fractionalize infrastructure projects, something that can contribute substantially to emerging economies. Our research report this week covers the issuance platform, Smartlands Platform Ltd., and kicks off our research series on issuance platforms, for which we will be releasing a report on a different issuance platform each week! Check out this week’s report, on Smartlands, here.

The List of Countries with Legal Definitions of Digital Securities and Security Tokens is Growing

A report by Security Token Advisors brings us up-to-date on just how far adoption and regulatory clarity have come when it concerns digital securities and security tokens.  As of now, “over 15 countries have defined the financial instrument with several more on the way”.   The hope here is that the countries that have passed legislation thus far can provide a sort of framework for others to follow, providing regulatory clarity, and thus easier institutional adoption.  With the oncoming of bigger economies defining the legal status of digital securities and security tokens, such as that of China, the US, and Germany, we may very well even see a snowball effect when it comes to clarity and adoption.

Creating a Consensus on Data

From distributed ledger company, IOTA, comes news of a hotly anticipated feature included in IOTA 1.5, also known as Chrysalis, termed “colored coins”. These coins are expected to hit by the end of October, as part of Chrysalis’s phase 2.

These coins are earmarked coins that can “represent real-world assets in a tamper-proof manner” by marking in a hash when an IOTA token is attached to a real world asset. This makes the coins “uniquely colored”, and thus tamper-proof.  Moreover, these colored coins, allowing one to spend a coin over and over on one’s self, will create a chain of spends and represent a consensus on the order of submitted data, bringing a very high level of security for tokenized transactions. IOTA developer Hans Moog says that “IOTA’s smart contracts will use the features described above to enable ‘private, unforkable blockchains’. Further, numerous other use cases are also conceivable, such as oracle solutions or the Unified Identity Protocol (DID)”.  Aside from this, according to Dan Simerman, Director of Financial Relations at the IOTA Foundation, companies in the industrial sector will likely “‘get really creative, like tie a token raise to the output of a non-fungible token tied to a physical device. We will likely also see a lot of coupon/crediting systems on the IOTA protocol once more complex scripting capabilities come with UTXO and Smart Contracts.’” In summation, the versatility of the colored coins on the IOTA protocol is one of the protocol’s strongest value propositions.

Fractionalizing Global Infrastructure Assets

Another interesting value proposition comes from London-based infrastructure fintech company Fassett, which seeks to address the problems of illiquidity and thus disincentivization within the infrastructure sector. As founder Mohammad Raafi Hossein puts it, “‘the larger the fund, the longer it takes for an investment to happen. While there is liquidity at the sovereign wealth fund level, the transaction time and sell cycle is extremely long. Medium-sized family offices or institutions can act quickly, but even for them, the ticket sizes are too large.’” This sort of deterrent is plaguing the development of infrastructure in developing economies.  Hence, Fassett’s vision: that medium sized family offices and institutions can more easily enter into and benefit from the infrastructure sector. This would happen because “fractionalizing the ownership of essential, hard assets” will lead to easier entry and exit for developers. This will, in turn, spur more growth in developing countries that need to spend large amounts of capital to keep up with forecasted GDP growth.  Fassett has recognized that smaller family offices have a considerable interest in investing in infrastructure projects, and represent assets under management ranging from $50-250 million.  Fassett, if successful, will enable and mobilize a powerful market segment.

The Upshot:

  1. In a report by Security Token Advisors, more than 15 countries have legal definitions of digital securities and security tokens, with more countries to follow.
  2. Distributed ledger company, IOTA, will be rolling out a new feature, termed colored coins, which are versatile, earmarked coins with numerous applications and a solid approach to providing a consensus on data.
  3. London-based Fassett seeks to address the pain point of smaller family offices and institutions not being able to participate in infrastructure projects due to a high barrier to entry by fractionalizing global infrastructure assets.