The range of digital assets is growing steadily. Especially for the group of security tokens, a strong growth is to be expected. But does the new range of tokens also reach the middle of society or the middle of investors? How blockchain technology can successfully replace old structures with the medium of tokens. Commentary.
Until now, the crypto market has stood for maximum risk and enormous volatility. The profile of the still chaotic asset class does not fit the average savings bank customer with a building society savings contract and Riester pension. No wonder, then, that only a few people still place their trust in digital assets.
Now, even blockchain technology and the medium of tokens will not help risk-averse advocates of building society contracts and life insurance to independently create a diversified token portfolio. Even if they are tangible assets rather than native cryptocurrencies, fears of contact with the token medium will remain high for the next few years.
Neither building savers nor crypto day traders: here’s how to reach the “middle”
While token investments have so far only been something for digital experts, there is a growing trend towards reaching the middle of society. This is not about the people who do not make any investments other than their savings account, building society savings contract and life insurance. Nor is it about the investors who only dutifully do what their bank advisor at the house bank advises. Rather, we are talking about the type of investor who independently invest in one or the other index fund or even make an individual investment in a share.
Since the financial crisis of 2008 at the latest, most investors have become aware that financial products from banks do not have to be all that safe. The low interest rate level makes life insurance and building society savings contracts as unattractive as possible. The general conditions and arguments for new investment offers are therefore better than ever.
So for token adoption to catch on with the majority of investors, it needs an offering that includes down-to-earth tangible assets, in addition to much better user-friendliness and secure custody solutions. As exciting as Bitcoin and other blockchain protocols are, they can and should only make up a small portion of the portfolio – absolute crypto enthusiasts excluded. The rest should be spread across stocks, real estate, precious metals, bonds and cash. What many don’t know: Security token offerings already exist for all of the asset classes listed.
How to establish a dual financial system with attractive digital assets
It’s not a matter of ditching the securities account at the bank and putting the capital into security tokens instead. Rather, the goal of the entire blockchain economy must be to enable a dual asset sector. There is no way around the bank account and securities account in their current form in the short to medium term. So instead of frantically trying to replace often well-functioning banking services, the main thing is to create new offerings that do not yet exist in the traditional world.
This is the only way that theThe token medium will enable a smooth transition in the next few years. Be it digital fiat currencies or company shares, which by default are based only on tokens and no longer on certificated securities. The transition to the token economy will only be smooth through convergence and compatibility, ergo customer-friendly transitions. The alternative to a smooth transition would be a scenario like currently in Venezuela. Where the traditional financial system no longer functions, blockchain alternatives can form a safety net and develop particularly quickly. However, such a transition is not desirable.
It is not the medium that decides, but the investment object
The decision whether to make an investment should not be based on the medium of securitisation, but on the quality of the investment object. If new assets can be developed with the help of blockchain technology under better conditions than in the “old world”, then investors will inevitably also invest in tokens.
Admittedly, there may be initial reservations. Sooner or later, (institutional) investors’ money always finds a rational path to the best investment. If new tokenized real estate and corporate shares outperform, then inevitably the market will choose token as a medium. The advantages of tokenization must prove themselves in attractive returns and good tradability. If they do, then the fear that digital assets, ergo security token offerings, will not catch on is unfounded.
From horse-drawn carriages to automobiles
The transition from analog to digital asset management can be thought of as similar to the transition from horses to automobiles. While 100 years ago there were only a few cars on the roads and mostly horse-drawn carriages, the picture changed over the years until in the end only cars dominated the streetscape.
A similar transition is being ushered in by the many new real estate investment platforms, among others. Examples include Finexity and KlickOwn, which use blockchain technology. In the foreground, or rather in external communication, you will hardly find a word about blockchain. The focus is on attractive real estate projects in which investors can invest. Beautifully presented, as one is also used to from the Engel-&-Völkers real estate agent, investors can thus invest in individual real estate properties. In contrast to comparable real estate projects, without the use of blockchain and tokens, investors benefit from simply better framework conditions.
Not only can costs be reduced through a greater degree of automation. In particular, a tradability of small ticket sizes can be made possible, which would not have been economically feasible before. It is therefore a question of an infrastructure that above all enables easier, cheaper and faster tradability. In this way, investment objects can be economically developed and offered to a broad investor public, which were previously only open to institutional investors.
It is precisely theseIt will be the new and emerging investment products that will ensure that more and more “average investors” gradually opt for digital assets. This evolutionary process will take many years and will require many reservations to be overcome. In a few years it will be so far that in the end only token infrastructures will remain. But until then, analog and digital assets will exist in parallel.
This article appeared on Yellow Rocket Agency back in January 2020, it has now been reviewed and updated.