"It is the first time in history that security tokens can be offered and traded in a legally binding way."
BLOCKCHAIN ISLAND. The tiny European nation of Malta is truly living up to its nickname of "Blockchain Island." On Thursday, MSX (the innovation arm of the Malta Stock Exchange) announced a new partnership with blockchain-based equity fundraising platform Neufund and Binance, one of the world's biggest cryptocurrency exchanges). Their goal: create the first global stock exchange that's both regulated and decentralized.
THE NEW SCHOOL. There are a lot of complex concepts at play here, so let's break them down.
First, tokens. In the realm of cryptocurrency, a token is a digital asset on a blockchain, a ledger that records every time two parties trade an asset. A token can represent practically anything, from money to a vote in an election. Today, many blockchain startups raise funds by selling "equity tokens" through initial coin offerings (ICO).
When a person buys one of these equity tokens, they are essentially buying a percentage ownership of the startup. They can later use an online platform known as a cryptocurrency exchange to sell the tokens or buy more from other investors at any time, quickly and fairly cheaply.
THE OLD SCHOOL. Equity securities, also known as stocks, are similar to equity tokens. A person who buys stock in a company owns a percentage of that company. However, securities are not traded via 24-hour online exchanges — they're bought and sold via stock exchanges, which are only open during certain hours. Navigating them often requires the help of middleman, such as a broker or lawyer, which could be costly.
A government agency typically regulates a nation's securities and stock exchanges — in the United States, that agency is the Securities and Exchange Commission (SEC). This regulation can protect investors from scams and ensure companies don't try to swindle them.
TOKENIZED SECURITIES. Tokenized securities are a melding of these two worlds. They're securities, and when they're traded, a blockchain records the transaction. This combines the fast, cheap transactions associated with tokens with the protective oversight of securities.
Right now, there's not a government-regulated, global platform hosting the trading of tokenized securities, and that's the void the Malta team plans to fill with their decentralized stock exchange.
“We are thrilled to announce the partnerships with Malta Stock Exchange and Binance, that will ensure high liquidity to equity tokens issued on Neufund," Zoe Adamovicz, CEO and Co-founder at Neufund, said in a press release. "It is the first time in history that security tokens can be offered and traded in a legally binding way."
Experts estimate that the value of the world's equity tokens could soar as high as $1 trillion by 2020. Malta's project is still in the pilot stages, but if all the pieces for its decentralized stock exchange fall into place, the tiny European island could find itself at the center of that incredibly fruitful market.
READ MORE: Malta Paves the Way for a Decentralized Stock Exchange [TechCrunch]
More on tokens: Tokens Will Become the Foundation of a New Digital Economy