Everything can be tokenized: a look at the development and regulatory landscape of the STO market


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Since the birth of STO, the market has not attracted enough attention, but the “first year of institutions” in 2021 and the gradual maturity of industry supervision may be an opportunity for STO to develop head-on.

Original title: “Underestimated STO: Everything can be tokenized”
Written by: Rimo

The advancement of the crypto industry has never stopped. As the innovative world matures, a steady stream of fresh blood, rational funds, and investment and financing methods more suitable for blockchain are needed. STO plays a role in this. The role of an essential middleman.

Analysis of STO

After the birth of STO, it seems that it has not attracted enough attention from the market. In the past 2020, it has become relatively quiet. With the arrival of the “first year of institutions” in 21 years and the maturity of industry supervision, multi-asset swaps and ecological scenarios There is still a huge room for imagination for the expansion of.

What is STO

The market definition currently covered by STO is very rich, and it has huge composability like Lego building. First of all, from the perspective of its full English name Security Token Offering, S stands for securities, which aims to supervise digital assets under the regulatory framework of securities laws; Token is called “tokenization”, “tokenization” or “digital securities” by many people. “Therefore, STO has also been given more concepts and imagination , such as digital securities, security token issuance, and the tokenization and digitization of assets.

Republic CEO Kendrick, who has many years of experience as a securities lawyer, believes that “in some countries (such as the United States), STO refers to the sale, issuance, and distribution of security tokens.” As for how to define security tokens, Kendrick emphasized:

“If a token is essentially similar to a company’s shares or investment agreement, it is said to have a “securities” nature. Specifically, if the investor of a certain token expects to obtain income in the future, and the token The increase in value of the token depends on the continuous operation of its R&D team. In the legal systems of many countries, the token is likely to be classified as a type of securities.”

With the extension and development of the STO concept, its actual definition has also been greatly expanded. If more asset classes are introduced, it can even be understood as a way of confirming rights on the blockchain and “fragmented transactions”. Series chain or real assets.

Looking back at the progress of the encryption industry, the development of STO is actually a bit similar to the hot DeFi . Many people defined it as “Open Finance” in the early days. After the explosive development in 2020, people slowly get used to it. It is called decentralized finance, and now it can refer to various decentralized protocols and applications. The definition of DeFi is not only limited to the financial framework .

Therefore, whether it is DeFi or STO, simple concepts will burst into greater imagination with the development of the market, and then evolve more modular display forms, for example, some projects propose STO + NFT, STO + DeFi, STO+DAO, and tokenization methods including real assets and on-chain assets, and various new concepts and experimental directions.

Organized by Republic.co

Features of STO

STO was born under the background of ICO, but different from the savage growth model of ICO, STO has been injected with regulatory genes since its inception. Therefore, legal compliance is an important prerequisite and most important feature of STO. .

Secondly, with the help of the STO model, many issuers or individuals can also realize the purpose of asset refinancing more flexibly . Compared with the traditional form of securities, there is a technological breakthrough, and the blockchain can be used to realize cross-regional and cross-exchange transactions. High liquidity allows the company to reach a wider range of investors and achieve fair competition in a more liquid and broader market.

In addition, STO tokens have economic incentive mechanisms and functional effects . Compared with traditional securities, their economic and asset attributes will be more flexible. They can redefine property rights and production relations, promote the coordinated operation of all parties in the ecology, and realize the company and users Between ecological incentives, users can obtain a part of the right to speak, in order to achieve more practical application value, enjoy company benefits, and extend this similar equity and economic incentives to the ecology, thereby forming a more benign development.

The role of STO

As an innovative new investment and financing model based on blockchain, STO breaks traditional forms such as bank loans and private equity, and provides a more powerful operation for both issuers and investors. system. At the same time, as the “advanced version” of ICO, STO can effectively curb market chaos and make up for the lack of supervision, and file related exemptions or registrations under the regulatory framework of the securities regulatory agencies of various countries.

For issuers , for a long time, some startup companies have been financing through bank loans and private placements, while venture capital is basically obtained by selling equity. If small and medium-sized enterprises raise funds through bank loans, they often face problems such as difficulty in approval and high loan interest rates, while private equity methods are time-consuming and labor-intensive, requiring investors, follow-up, and detailed considerations.

With the help of STO, issuers can broaden their financing channels and reach more ordinary investors. At the same time, they can use smart contracts to automate transactions, and even facilitate companies to complete cross-border settlement and payment scenarios.

In addition, due to the elimination of many intermediate links such as securities companies, law firms, and investment banks, STO will greatly reduce the issuer’s economic and time costs . Traditional securities require intermediaries to complete a series of procedures such as registration and liquidation. The STO declaration process and procedures will be more convenient. Similar to the Reg D STO issuance exemption method, the issuer does not need to complete the complicated process by disclosing tedious financial information. Greatly shorten the time and economic cost required to complete the financing of the project.

Everything can be tokenized: a look at the development and regulatory landscape of the STO marketOrganized by Republic.co

For investors, especially individual investors, investors who have completed KYC/AML and other relevant conditions on the platform can STO through on-chain circulation, which can reach a wider range of investment groups.

In addition, the sale of STOs under the regulatory framework can effectively prevent fraud and market manipulation, and fundamentally ensure the interests of investors and fair transactions.

Using STO as a form of fundraising can eliminate the information asymmetry between the issuer and the investor, allowing the two parties to establish a direct and effective contact.

Market size & development status

Since STO can tokenize a series of assets including real estate, private equity, games, derivatives, cash, and artworks, and introduce off-chain assets onto the chain through securitization, its potential market prospects are huge, but In view of the large number of fields involved, the current STO overall market development scale and status may not be measured with exact numbers, so some market segments will be used for simple measurement and comparison.

From the perspective of STO real estate segmentation , according to the December 2020 report released by Security Token Market, the measurable market value of tokenized real estate reached USD 25,751,780 , an increase of 1.26% from the previous month. The transaction volume of STO tokens in the secondary market was 179,861 US dollars, the monthly trading volume fell 4.47% from the previous month.

Everything can be tokenized: a look at the development and regulatory landscape of the STO marketOrganized by Republic.co

From the perspective of the Chinese art market , according to the China Business Industry Research Institute, the market size of the Chinese art platform increased from 3.658 billion yuan in 2015 to 13.437 billion yuan in 2019 in terms of transaction volume, with a compound annual growth rate of 38.4 %. It is estimated that in 2024, the transaction volume of Chinese art trading platforms will reach 30.723 billion yuan , a compound annual growth rate of 18.4%, and the transaction volume of art information platforms in 2024 will reach 393 million yuan, a compound annual growth rate of 16.2%. If a conservative estimate of 0.1% of the asset share is tokenized, it is estimated that the asset size of the Chinese art market may exceed 3 billion yuan by 2024 .

From the perspective of traditional investment , Crunchbase data shows that despite the global outbreak, the total amount of North American venture capital in 2020 increased by about 7% compared to 2019, exceeding US$150 billion , a record high, also at a rate of 0.1% Calculating, then there is a potential scale of USD 15 billion tokenized investment market in the North American market.

Rotterdam School of Management (RSM) Professor of Finance Peter Roosenboom, Rotterdam School of Management Assistant Professor of Finance Thomas Lambert, Rotterdam School of Management and Singapore Management University Fintech Lecturer Daniel Liebau and many other scholars jointly issued a joint release of new security tokens (STO ) A market research report that studied 185 “real” STO sample data.

The report pointed out that one-third of them cannot be considered STOs in the strict sense. Instead, they are either stablecoins or ICOs disguised as STOs. The report also records three basic facts. First, the STO market developed after the end of the ICO market bubble, and STO-related activities began to increase at the end of 2018. Secondly, most STOs have not successfully raised funds, which indicates that the STO market is still in its infancy and therefore still very immature (many companies may not be ready to start STOs). The third is that STOs are scattered around the world, mainly in the United States and jurisdictions where securities laws apply.

Everything can be tokenized: a look at the development and regulatory landscape of the STO marketSTO distribution map of samples taken from Q2 2017 to Q1 2020, source: Rotterdam School of Management

STO regulatory territory

As mentioned above, the prerequisite for STO is to go further in the interactive level of supervision. Although the current industry supervision system is not perfect and there are differences between countries, the phased policy guidance still has a certain guiding significance for the market. The gradual improvement of supervision will also help the STO industry move forward.

In mid-December 2020, the U.S. Securities and Exchange Commission (SEC) formally filed a lawsuit against Ripple and its two executives, accusing it of issuing more than $1.3 billion in unregistered securities. This incident caused a huge response in the crypto industry. Many platforms, including Coinbase, the largest trading platform in the United States, announced the delisting of XRP transactions. Well-known institutions including Grayscale have also stated that they no longer hold XRP assets.

Looking back on the development process of the industry, the US SEC has clearly penalized many projects on many occasions, and the supervision of STOs, including the entire encryption industry, has never been relaxed, but supervision can also help reduce risks and ensure the industry’s sound development.

From the current STO-related policies issued by various countries and regions , developed countries such as the United States, Europe, Canada, and Singapore have relatively complete rules and a relatively open attitude. At the same time, due to the nature of STO’s own securities, it is naturally suitable to take the lead in making breakthroughs in places where the financial and securities system is complete and the supervision is clear. It also reflects that STO has a certain correlation with the country’s financial development.

China’s attitude towards STO is relatively strict. Countries such as Thailand and Japan have stated that they conduct systematic investigations and supervision of STO. The overall attitude is relatively neutral. For most developing countries, due to their relatively backward development and external international forms The more turbulent impact has left the supervision of emerging industries in a relatively passive state.

Hong Kong has been relatively active in the field of STO supervision in the past two years. For example, the Hong Kong Securities Regulatory Commission was putting a virtual asset trading platform that meets the requirements into the regulatory “sandbox”. In 2020, OSL obtained the Hong Kong Securities Regulatory Commission license to trade BTC , ETH and selected security tokens, OSL has also become the first licensed virtual asset trading platform in Asia.

Everything can be tokenized: a look at the development and regulatory landscape of the STO marketOrganized by Republic.co

STO various participants

The entire STO ecosystem is composed of multiple participants, mainly including issuers, investors, issuance platforms, transaction parties (Security Token trading platforms, transactions and liquidity agreements), technology providers, legal consulting institutions and other parties.

The issuer refers to the holder of the Token, the provider of the asset, and the transaction party refers to the place where the Token is traded, including platforms such as Polymath, tZero, and various agreements. The service parties include Centrifuge, Republic, Securitize, etc., as the matching issuer The role of middleman with investors is also an indispensable part of the STO ecosystem.

Take Republic.co as an example. The company was founded in 2016. After six years of development, it has become one of the world’s largest investment platforms. The platform business covers various fields such as start-ups, equity crowdfunding, real estate investment, e-sports and game investment, and mid to late underwriting .

Republic.co has established a deep cooperative relationship with the world’s top venture capital funds and family offices, including a16z, YC, Zhen Fund, NGC, etc. Republic is also the first project invested by AngelList and Binance. Investors include Blockchain Ventures, Algorand, NEO, Zhen Fund, NGC, FBG and other well-known investment institutions at home and abroad.

In 2020 alone, Republic.co has completed $ 150 million in financing for 157 companies. These include private equity, equity crowdfunding, real estate financing, game financing, currency rights financing, etc., which include many unicorn companies such as Robinhood, SpaceX, etc.

Everything can be tokenized: a look at the development and regulatory landscape of the STO market

In 2021, Republic will soon issue digital securities Republic Note under the guidance of supervision. When a project successfully exits, Republic will realize the carried interest of the project and use it for platform currency dividends. More than 12,000 investors from 25 countries have participated in the public offering of Republic Note.

Barriers in the market

As an emerging market, STO’s project and market performance in the longer term still needs further observation. First, the regulatory attitude still plays a key role in the development of STO. If the review becomes stricter, it may cause The progress of compliance becomes more cumbersome, or directly affects market sentiment.

Secondly, the high liquidity of assets may cause drastic fluctuations in market prices. Although STO has accelerated the pace of start-up companies’ financing and listing, and has increased many ST holders within a short period of time, start-up companies are still in their infancy and are developing in the future. There are also many uncertain factors. Many start-up companies are also facing the risk of bankruptcy due to poor management and other reasons, and the completion of projects is low. These potential unfavorable factors may trigger asset fluctuations.

On the other hand, different exchanges have adopted different ST asset standards , the liquidity of the market is fragmented, and ST transactions between cross-exchanges cannot be carried out, which will restrict the trading and circulation of assets .

STO requires a complete set of securities logic, involving the collaboration of all parties, asset standards, and cooperation with the transaction. Therefore, it also places high requirements on technology. The underlying infrastructure of the entire system also needs continuous iteration and improvement.

Composable directions in the future


As a non-homogeneous token, NFT has achieved great growth in the encryption field, and many people have high hopes that it can take over DeFi and become another important track for rapid development in the future.

From the perspective of its field development, all entities in the real world, including artworks, collectibles, etc., can use STO to be chained, which naturally fits the development direction of NFT. If NFT passes STO’s Compliance procedures, then NFT assets will have compliant equity tokens, which can solve many problems of NFT legal rights and ensure the authenticity of assets and their actual ownership rights. STO can allow more off-chain assets to be mapped into the blockchain in the form of on-chain NFTs, realizing the coordinated development of the two major markets.

STO + DeFi

STO can bring real and valuable funds from the traditional financial world into DeFi. For the DeFi industry, the entry of these institutional-level compliance funds can promote the market to develop in a healthier direction. For example, the purpose of initial financing by some entrepreneurial teams is generally for the development of the project, hoping to achieve more benefits in the future. If the screening of STO is used, it can help the project to shift from speculation to investment in the value discovery process. Good service for the development of projects and industries is not to “cash out” tokens, but to seek to form a positive cycle of the overall industry.


STO assets also have the right to confirm shares. If the flexible attributes of tokens are added to give them expanded economic incentives and governance function attributes, then it may be possible to redefine the production relationship, realize the ecological incentives between the company and users, and allow users to participate The company’s governance process, to obtain a part of the right to speak, further promote the company’s fairness and transparency.

Large institutions + STO

Large and traditional institutions are also actively trying to use STO to enter this vast market, helping the industry to “out of the circle” further.

Fusang Exchange, a digital securities trading platform, previously expressed the hope that it would jointly launch a digital bond product based on the Ethereum blockchain with China Construction Bank Labuan Branch (CCBL), “Longbond SR Notes USD Feb 2021”, but then its release date Currently in a postponement state.

Singapore’s DBS Bank has also stated that it not only supports the trading of encrypted assets such as Bitcoin, but also expects to use blockchain technology to provide an ecosystem for funds through STO and secondary markets.


The blockchain field always breaks the tradition to provide new cognition and innovation. This is a place full of imagination. STO tries to use the blockchain to subvert the traditional financial regulatory thinking, and promotes compliance under the framework of the Tokenization method. The new development of assets allows more off-chain assets to enter the industry in a more suitable way, so that truly valuable assets can better settle in the industry.

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