The Emergence of Security Tokens

December 13, 2022

The global market outlook opens structural opportunities for Security Tokens as a rapidly growing field for institutional actors looking to get exposure to the tokenization of finance. But before we dive-in, here’s a quick definition:

A Security Token is a type of digital asset that represents ownership of a real-world asset, such as stocks, bonds, or real estate. Security tokens are typically issued through a process called a security token offering (STO), which is similar to an initial public offering (IPO) for traditional securities. Security tokens are subject to regulatory oversight, and are backed by real-world assets which can provide investors with a higher degree of security and liquidity compared to other types of crypto-assets. Unlike utility tokens, which are designed to be used as a means of payment or access to a specific product or service, security tokens are designed to provide investors with ownership rights and potential financial returns.

It is important to note that the majority of crypto-assets are considered utility tokens and are generally not considered securities and are therefore not subject to the same level of regulatory rigor as security tokens. The non-uniformity of the global regulatory framework around utility tokens can be seen as a potential risk for institutional investors, who are often subject to strict investment mandates and regulations. By investing in Security Tokens, institutional investors can gain exposure to the potential benefits of the crypto-currency market, while still meeting their regulatory obligations. Security Tokens also offer investors the ability to trade and transfer their assets easily and securely.

Security tokens are important for retail and institutional investors because they provide a way to gain exposure to the crypto market while still complying with regulatory requirements. Celent’s 2022 Survey of Global Institutional Investors outlined that over 91% of institutional investors are interested in investing in tokenized assets. Additionally, JPMorgan’s 2022 report outlines that many firms are entering the tokenization space across multiple asset classes including equities, bonds, real estate, commodities and others. As an  example, J.P. Morgan’s intra-day repo application on Onyx Digital Assets has processed more than $430 billion of repo transactions since its launch in November 2020. Additionnally, in 2021, Switzerland implemented a “DLT Act” granting tokenized securities the same legal status as traditional ones.

Petale takes this outstanding security token approach with the XPTL Token. A reserve-backed token tracking the value of the tokenized fund’s portfolio and investments. As the fund performs, it grants its holders access to smart dividends and exclusive digital investment opportunities. The XPTL token is issued as a native security token and an economic primitive that uses an investment model to generate performance in both the real and digital economy. The XPTL token is backed by reserves and investments crystallized in the platform and offers the velocity and digital ownership of crypto assets, with the stability and security of traditional currencies.

Importance of Governance and Infrastructures:

The 2022 market shake-outs have exacerbated the need for a strong governance, transparency and independent auditing from external audit firms.

That’ why we designed Petale’s governance is designed to provide native and transparent approach of reserves and solvency, publicly accessible on the Vortex, and certified by a 3rd party audit firm. Our commitment is to build a strong decentralized financial system based on a transparent view of the fund’s portfolio allocation and make informed decisions that are aligned with their financial objectives.

To strengthen our Security token governance model, we have set-up a Strategic Board composed of renowned economists and business leaders. Members of the strategic board all bring their experience and vision in different areas of development to efficiently cover the high demand for accountability. This non-executive management body advises the group in its strategy to align synergies between traditional finance and decentralized finance using new technologies.

Infrastructures are key to a well-governed and decentralized financial system. That’s why we have built the Vortex, a decentralized settlement system specially built for verified users to exchange tokenized assets. It allows the creation and exchange of multiple classes of tokenized assets in seconds, within a framework of trusted and verified investors and asset managers. The Vortex decentralized blockchain infrastructure is fully decentralized geographically and by governance to provides a reliable and transparent network to transfer value & assets in a fast, secure and autonomous manner.

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