LIQUIDITY & SECONDARY TRADING PLATFORMS OF SECURITY TOKENS
A major factor in the future success of security tokens, or in the tokenization of real world assets (where an asset is “digitized” on the blockchain), depends upon the liquidity of these crypto securities. As an investment, these are securities in the U.S. and must comply with securities laws.
Accordingly, compliant trading platforms must exist in order for secondary trading, and therefore liquidity, to exist. Alternative Trading Systems (“ATS”) are the specialized broker dealers that are licensed to make secondary markets for private securities such as security tokens. Previously little known and esoteric “dark pools”, entrepreneurs and institutions alike are now rushing to establish and promote these highly regulated platforms. In addition, several “peer to peer” services have emerged whereby sellers and buyers can list, buy and sell securities without the need for an intermediary. While we know of several additional platforms currently under development, following is a list of the several ATS and peer to peer exchanges that are currently in the market for the purpose of providing liquidity for security tokens. CURRENT ALTERNATIVE TRADING SYSTEMS
Coinbase is the leading crypto exchange with over 13 million users and has raised over $525 million in venture capital to date. It purchased an ATS in mid 2018 and is finalizing regulatory approval as of November 2018. www.coinbase.com
Templum Markets LLC is a broker dealer and alternative trading system (“ATS”) registered with the SEC and FINRA, offering issuers a platform for the initial sale of their tokenized securities and both issuers and investors a centralized platform for secondary trading. https://www.tradetemplum.com/
Open Finance Network is a venture backed crypto trading platform that clears trades through its affiliate Sageworks Capital, LLC, an affiliated entity, and a registered broker-dealer and ATS and member FINRA/SIPC. www.openfinance.io
TZero raised $134 million in its ICO ended August 2108. It is a subsidiary of public company Overstock.com and aims to be a leading ATS. www.t0.com
SharesPost was established in 2009 as a private securities broker dealer. It operates an ATS and has recently rolled out the Token Index which seeks to track the growth of tokens issued by Blockchain startups. www.sharespost.com
The Hyperion Exchange is a regulated token exchange through its partnership with Delaware Board of Trade (DBOT). DBOT is a FINRA member, and a member of the Securities Investor Protection Corporation (“SIPC”), that operates a fully automated, auto-execution SEC registered Alternative Trading System. www.hyperion.exchange
ALTERNATIVE TRADING SYSTEMS IN DEVELOPMENT
Goldman Sachs–backed cryptocurrency startup Circle purchased Poloniex in February 2018, with the aim of “ cleaning up ” the exchange and turning it into an alternative trading system. www.poloniex.com
Bittrex is a crypto exchange renowned for the vast number of cryptocurrencies it has listed. It recently announced a partnership with Rialto which currently operates a regulated ATS for trading fixed income products, and pending approval from regulators, Rialto will expand its ATS operations to include blockchain-based (digital) securities.
A traditional investment bank with a history in oil and gas. Entoro is building a blockchain and crypto practice while also developing an ATS. www.entoro.com PEER TO PEER PLATFORMS
Elimination exchanges entirely, AirSwap is a peer-to-peer trading network built on Ethereum. It boasts of being the world’s very first transfer of a security on a public blockchain (The SPiCE VC security token). www.airswap.io
Kyber allows decentralized token swaps to be integrated into any application. Issuers and other developers can build peet to peer trading capabilities right into their apps or websites. www.kyber.network CONCLUSION The advent of the blockchain and the ability to digitally tokenize securities represents a major innovation in the tradability (and overcoming the illiquidity discount) of private securities. The establishment of secondary market platforms helps ensure access and compliance of the liquidity of this market. The full potential of security tokens will be fulfilled as these secondary trading latokens continue to proliferate.