Asset tokenization is gradually gaining popularity among businesses. Today, many companies are interested in this approach to attract capital. According to the report of the World Economic Forum, the value of the security token market is expected to reach 24 trillion dollars by 2027! There are many reasons why you should use this investment tool for your trading. In this article from Mazdax Academy, we discuss five reasons for issuing security tokens.
Five reasons to issue security tokens in 2023
Asset tokens are gradually gaining popularity around the world. This technology is attractive to both token issuers and investors. Here are the five main advantages of this technology for companies.
1. High liquidity
Security tokens allow you to increase the liquidity of any asset. This also applies to stocks. Security tokens are more liquid for two reasons.
A) Fractional ownership
Security tokens provide fractional ownership. If an asset is too expensive, a limited number of investors can invest in it. But if you divide this asset into several parts, even people with a small budget can invest in it. Therefore, companies can raise funds from a wider range of investors. This is especially true for high-risk industries such as mining companies. Tokenization allows you to attract investors who are prone to risky transactions because they do not have to invest large amounts.
b) secondary market
In addition to fractional ownership, the liquidity of security tokens also increases the possibility of forming a secondary market. In the case of traditional securities, they may pay dividends in just a few years. In case, you can earn money much faster from security tokens. If their price increases on the stock exchange, the investor can sell the tokens on a specialized platform (Mazdex). With this happening, private companies will become a more attractive option for investors, because it is possible to exit the market at any time. This will expand small and medium businesses in this area.
2. Programmability
The security token is programmable. All complex procedures can be easily programmed in this token. For example, you can automate the management of token holder rights. In fact, the owners of the security token are equal to the shareholders of the company. In addition, smart contracts can be programmed in such a way that all obligations of the parties are fulfilled automatically. For example, if shareholders have voting rights, it is possible to hold shareholder meetings online.
The checkout process can also be shortened. The transfer of shares in the traditional system requires proper documentation, and the security token facilitates these procedures. If these tokens are transferred to verified users through KYC/AML, the process can be facilitated to the extent permitted by each country’s jurisdiction. Security tokens are a permanent record of ownership of an asset on the blockchain that cannot be deleted or changed. Therefore, they reduce security risks.
3. Attracting small investors
Attracting small investors is a significant advantage for companies that manage expensive assets. For example, investing in real estate is out of reach for many investors because of the high entry threshold. This seriously limits the circle of potential investors. However, even if you manage to find a buyer, you still have to agree on all the details with him, who in turn may demand a lower price, which ultimately makes the company less profitable.
But STOs solve such problems due to the possibility of dividing shares of assets. As a result, the entry threshold can be reduced a thousandfold. For example, if an asset is $1 million, it can be fully or partially split into $1,000 worth of tokens. In addition, customers who are willing to risk a certain amount to earn large profits are also attracted to this project. Another advantage of STO for companies is that after a successful token offering, the probability of having a successful traditional funding round increases significantly.
Overall, businesses get an additional tool to better engage with their community. As their stakeholders become shareholders with tokenization, this solves the dilemma of the supremacy of stakeholders versus shareholders and allows businesses to balance the interests of their respective members and achieve more sustainable growth.
4. You don’t have to take your company public
The main difference between an STO and an IPO is that if a company does an IPO, it must go public. But for STOs, there is no such requirement. State-owned companies are required to publish their financial statements at least once every three months. It is necessary for investors to receive up-to-date information about the company’s status and be able to make informed decisions. To perform an STO, a company does not need to go public and disclose its financial statements. In addition, state-owned enterprises are more responsible. LLCs that conduct an STO can raise capital while bypassing such requirements.
This gives you access to capital and liquidity long before you enter a centralized public market such as the NYSE or NASDAQ. So over time, the security token market becomes less and less dependent, obsolete centralized exchanges and DEXs replace them.
5. The opportunity to attract capital from all over the world
STOs are not geographically limited. Companies can attract capital from all over the world. For example, if a company’s main markets are in the United States, the United Kingdom, and Germany, it can do STOs for customers in those countries. However, it is important to know that security tokens are known as securities. For this reason, there are differences in the approach of the legislators of each region. If a company wants to conduct an STO in a particular country, it must ensure full compliance with the legal requirements there. For example, if the STO is held in 3 countries, it must comply with the regulatory requirements of each of them. Therefore, it is better to get professional advice from companies that help in setting up an STO before starting this process.
Conclusion
Tokenization is a technology that provides new fundraising opportunities for companies. While facilitating the use of digital assets, it ensures equal rights and protections for investors as securities. Security tokens make investing in any asset more accessible to retail investors and significantly expand the pool of people who may be interested in your offering. The offering of these tokens has many advantages over traditional fundraising methods, and for this reason, they are becoming more popular around the world.
Do you know that Mazdax exchange is the only active Iranian platform in the field of security tokens and you can trade these tokens 24/7?
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