Security Token Market Cap Breaks $1 Billion, Shows Signs of Exponential Growth

August 31, 2021 — MIAMI— Following the listing of INX Limited’s $INX security token, the digital securities industry has surpassed $1 Billion dollars, a 2.7x growth since the start of the year. The security token market has seen incredible growth in 2021, capitalizing on large fundraises across the industry and easing regulatory constrictions on issuers and financial service providers around the world.

The trading landscape through the beginning of 2021 was carried by issuers like Blockchain Capital’s tokenized venture capital interest $BCAP, tZERO’s revenue-sharing token $TZROP, or Swiss-based Mt Pelerin’s tokenized equity $MPS. Shares of these ‘OG’ tokens have been on the rise, up 200%, 122%, and 243% year to date, respectively. These three assets alone combine for over $200M in market cap and represent some of the largest tokens in the industry, even 2–3 years after initial issuance.

On top of asset appreciation, the security token market has seen dozens of new assets finish mandatory lock-up periods post-raise, bolstering the trading market. US-based Curzio Research took private company shares live onto the MERJ Exchange via a security token last year. Science Blockchain listing its shares on INX in April. Florida-based real estate issuer RealT has issued over 100 tokenized residential real estate properties, each available for individual investment through decentralized exchanges like Uniswap or Levinswap. These assets have generated interest from retail investors and enthusiasts as successful use cases for tokenization, and have begun to pave the way for higher-cap issuers to leverage the technology and find liquidity for their assets.

After sitting in the $550–650M range through the summer, the industry was given a breath of fresh air through the listing of $INX. INX Limited, which made headlines last year as the first foreign US-registered public digital security offering, launched a security token that is available to both global and US retail investors. The company is positioning itself as a leading cryptocurrency exchange. They acquired OpenFinance Network a few months ago, and 40% of profits generated by the exchange will be distributed to $INX security token holders, in addition to other platform benefits including reduced fees with /INX trading pairs, similar to functions offered by Binance’s $BNB (which doesn’t offer dividends — and wholeheartedly rebukes claims of being a security token altogether). After completing an $80M+ fundraise, the token began trading on the INX Securities platform on July 28th, 2021. (previously OpenFinance Network, acquired in 2021). According to leading security token research firm Security Token Market, the token reached highs of $2.71 this week, adding over $335M to the total market cap, pushing the industry total to over $1 Billion dollars at multiple points this week. See live prices and trading at stomarket.com.

Reaching a billion-dollar market cap is more than just an arbitrary milestone for the security token industry. With the potential to tokenize hundreds of trillions of dollars of real-world assets — including equities, real estate, debt products, and alternative investments — many industry experts suggest that the securities markets have an even higher ceiling than the more widely adopted cryptocurrency industry. Despite more burdensome regulatory requirements, the industry has quietly grown and developed, and this peak represents the first glimpse at mainstream adoption for blockchain-based securities. On the heels of SEC Chair Gary Gensler’s comments suggesting that many ICOs and crypto-assets should in fact be following US securities laws, security tokens provide the streamlined and fully compliant option for future issuers to raise capital under the blessing of US regulators, and in turn, regulators around the world.

This market isn’t set to flatline at the $1B threshold, either. On September 14, 2021, it is expected that Exodus, a cryptocurrency wallet with over 2 million users, will list its security token on the US-based marketplace tZERO. The ATS has already begun onboarding the 6,800+ investors from the offering, which achieved two ‘firsts’ with its fundraising:

1. First security token offering to complete a Regulation A+.
2. First crowdfunding issuer to fully subscribe a Reg A+ to the newly-expanded cap of $75M.

Considered the ‘holy grail’ of the fundraising industry, Reg A+ is a “mini-IPO” that allows an issuer to raise up to $75M from retail US investors. Exodus fully completed this fundraise in a matter of weeks, exposing thousands of its customers to equity in the company. With an initial market cap of over $700M at listing, $EXIT tokens listing on tZERO will add even more momentum to the burgeoning security token industry and will do some significant heavy lifting to bring the market cap toward $2B before year’s end.

Exodus is rumored to have plans to cross-list on multiple exchanges and markets in the future, but the tZERO ATS was an obvious choice for listing, as the marketplace has been the leader in secondary market transactions for security token trading since its launch in early 2019. The platform currently serves trading for 3 tokens: its own revenue share asset, $TZROP, alongside NASDAQ-traded Overstock’s digital equity $OSTKO and equity in the St. Regis Aspen Hotel, $ASPD. TZERO has maintained industry dominance through market cap and trading volume, representing 52% of the total market cap and 74% of the total trading volume across the industry as of July 2021, according to Security Token Market. The market has begun onboarding thousands of investors in the $EXIT offering and is preparing to place the asset on its platform in the coming weeks. This is expected to drive the industry forward and capitalize on the positive momentum in the digital asset space.

The security token industry is poised for continued explosive growth in the future, with more new tokens on the horizon. Video game publisher Exordium, which raised a security token offering for its new MMO, Infinite Fleet, invites gamers from around the world to invest in the video game and become active supporters in the development of the experience. The security token has raised over $3.7M from 842 investors to date. This method of crowdfunding is a revolutionary way for companies to access capital and connect with power users worldwide.

Other exciting offerings on the horizon include:

• Bitcoin mining company Blockstream, which launched a security token offering backed by mining revenues for institutional investors
• The Republic Note, which completed a security token offering backed by the crowdfunding portal Republic’s portfolio of equities that have raised on the platform, including Kraken, SpaceX, Robinhood, and Dapper Labs.
• OTC-listed biotech and small-cap firms moving from notoriously volatile and naked short-sold pink sheets over to a digital asset-focused platforms using the Vertalo platform

These offerings add to billion-dollar real estate portfolios, venture capital funds, exotic sports cars, art, and even sports teams that are being tokenized. Leading industry consulting firm Security Token Advisors is also working with other issuers who are leveraging security tokens and plan to come to market soon.

The United States has built a reputation as being slow to adopt new financial technology and can be a thorny regulatory climate to navigate for platforms looking to service security token trading. However, despite the bureaucracy, A handful of newly-approved marketplaces have recently received approval to trade security tokens via an ATS license, including Securitize Markets, Oasis Pro Markets, Figure, North Capital, Texture Capital, and Rialto Markets. There is no doubt that others are on the way, as broker-dealer license filings are increasing in the industry, while the SEC has published a No-Action letter for licensed brokers to custody security tokens for the next five years while following the ‘Three Step Approach’.

One of the biggest opportunities for security tokens that should not be overlooked is the international interoperability of capital markets. For the first time ever, an issuer can connect with investors around the world and manage the cap table with hundreds or thousands of investors outside of their own jurisdiction. We have seen increased activity in the security token space in Europe and Asia that compliments the developments happening in the US. London-based exchange Archax is preparing for launch to broker and trade security tokens while firms like ADDX is poised to capture the APAC market.

The security token industry is on the cusp of a breakout. Industry professionals worldwide have spent years acquiring the proper licenses to operate fully-fledged broker platforms to service traditional securities in order to follow all necessary compliance for security tokens. Unlike crypto, which SEC Chair Gary Gensler recently compared to the ‘Wild West,’ the security token industry follows strict rules and regulations as enforced by regulators around the world. While the industry has historically moved slower than what we’ve seen in DeFi or NFTs this year, it is certainly the blockchain application that is most poised to capture traditional market share and scale much faster in the future without the same regulatory crackdown that overshadows other crypto verticals. The most inspiring thing about the industry is that innovation has thrived in a compliant environment that will provide a more democratic and competitive financial environment for any issuer or investor anywhere around the world.