Abstract
Security Token Offerings (STOs) are a very recent phenomenon that has started to replace the Initial Coin Offering (ICO) one for financing companies through blockchain networks. Contrary to ICOs, which are based on “utility tokens”, STOs issue “security tokens” that are likely to achieve revenues in the same way that bonds or shares do. However, because they utilize the blockchain network, they are expected to benefit from lower intermediary and transaction costs. The objective of this paper is to examine, for the first time in financial research, to what extent this nascent market can become a liquid one, adapted for small and medium-sized enterprises (SMEs). To address this still unexplored issue, we proceed in two stages. First, we develop the technical characteristics of security tokens. Then, we analyze the trading volumes of a very few ones, although it has proved difficult to conduct a relevant empirical analysis. Our results are that, as for ICOs, the technical nature of security tokens can greatly facilitate their listing and exchange. However, there are significant disparities in their use and, for the moment, most of them remain locked in the wallet of so-called accredited investors. As a result, the potential of the blockchain-based equity market is still uncertain: STOs are likely to represent a growing and liquid alternative to IPOs, private equity and crowd funding to finance SMEs. Nevertheless, the liquidity of their digital assets strongly depends on the quality of their issuers and on the existence of specialized trading platforms.
Highlights
IntroductionF. Mazzorana-Kremer minant role for companies, especially in the small and middle cap sector, in which fundraising costs can quickly become prohibitive
Because the lack of liquidity limits the participation of investors and increases the cost of capital, it is a determining element in the attractiveness of a market
This is currently the major problem faced by the small and medium-sized enterprises (SMEs) stock market; for this reason, it is essential that alternative and competitive financing solutions emerge for this category of market players
Summary
F. Mazzorana-Kremer minant role for companies, especially in the small and middle cap sector, in which fundraising costs can quickly become prohibitive. Small- and medium-sized companies often have a limited access to equity and bank lending remains their most common source of financing. Equity capital markets are fragmented and not highly attractive to small and medium-sized enterprises (SMEs), with low levels of cross-border investment [1] and low liquidity. In 2008, the launch of the bit coin digital money by Satoshi Nakamoto [2] made public a new and tremendous underlying technology: the blockchain: it enables the exchange of value on the internet in a trusted and secure manner. The world had known the Internet of information. It was about to discover the Internet of value [3]
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