The race is on to be the NASDAQ of blockchain
BREAKERMAG
April 23, 2019
By Robert Stowe England
As the market for tokenized securites begins to take shape, U.S. trading platforms are seeking first mover advantage.
The winner hopes to become the primary destination for investors and traders to buy and sell tokens for equity, debt, and other security instruments. Evangelists see potential for tokenization to take a big fractional bite out of the illiquid $7.7 trillion market for alternative assets, which includes real estate, private equity, venture capital and hedge funds.
Security tokens have a bright future because they solve a key problem facing alternative assets, these people say. Unlike public equities, private securities do not have a well-defined and structured clearing and settlement process. There is no central securities depository. There is no coordinated clearinghouse. “It’s a very raw space where a lot gets done through the broker-dealer network and through financial advisors,” says Juan Hernandez, chief executive officer of OpenFinance, a security token trading platform based in Chicago.
The world of alternative assets will come to appreciate and embrace blockchain for trading its illiquid securities “not because of the hype or frenzy or the excitement around blockchain,” says Hernandez, “but, simply put, because it is just a more efficient way to conduct a private placement and a more efficient way to manage the shareholder relationship after the issuance.”
Related: Real Estate Token Sales Are So Next Year
Hernandez sees OpenFinance as a neutral facilitator that does not take a position in the trades. The exchange has a central limit order book and uses a price/time algorithm in its matching engine in much the same way as NASDAQ matches buyers and sellers and executes trades.
But despite the grand vision for an active market trading private securities, current trading volumes remain quite low and uninspiring. In such a landscape of scarce trading activity, each of the contenders is looking to stake out a patch of territory, however small or tentative it might be.
OpenFinance faces competitors that think they have the edge. Among them are Templum Markets, SharesPost, and Overstock’s tZero. Even so, OpenFinance claims its achievements place them a few steps ahead. “We were the first U.S.-registered platform to begin trading live on November 28, 2018, and we remain the only live U.S. platform for U.S. and non-U.S. investors, operating around the clock every day of the year.”
Other platforms stake out their own bragging rights. For example, Templum did the first security token transaction on a regulated platform in January 2018, ten months earlier than OpenFinance, according to chief executive officer Vincent Molinari.
It is difficult to assess the claims of trading platform companies. Public information on what tokens are trading on any of the platforms is scarce. Only a few scraps of information have been made public.
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