'Security tokens to dwarf cryptocurrencies'

Fincross to launch new digital investment banking service

By Park Hyong-ki

Fincross International, an investment bank specialized in traditional and digital assets, sees an immense opportunity in security tokens, said Henry James, the company's deputy chief executive and chief strategy officer.

Security tokens will be a lot bigger and will offer more stable returns than cryptocurrencies, now often linked to scams and bubbles.

Security tokens are like traditional stocks and bonds backed by underlying corporate assets, including intellectual property and brands. They are, in other words, the digital version of equities and debt securities issued and traded in the capital market.

And the big difference between security tokens and cryptocurrencies is the former is issued through a centralized network in a regulated market, while the latter is unregulated.

“Security tokens are highly regulated, and cryptocurrencies are unregulated assets in most jurisdictions. In the vast markets, we can buy, speculate, and you can even offer services linked to cryptocurrencies without a license,” James recently told The Korea Times in Seoul.

“In our view, security tokens will far overtake the cryptocurrency market. They will dwarf the size of cryptocurrencies. By the end of 2021, we forecast the security token market will be bigger than the cryptocurrency market. Not long after that, we will see a trillion dollar security token market.”

James was in Seoul to meet with local venture capitalists for fundraising as Fincross is preparing to launch its digital investment bank next month. Fincross is in talks with DBS in Singapore for business ties.

The startup is based in the Republic of Mauritius, part of the Commonwealth, which has a comprehensive regulatory framework for digital asset management.

The country issues digital asset custodian licenses as part of efforts to develop a fintech hub.

Loretta Joseph, an adviser on blockchain to the OECD, has helped set up the framework there. She was a former Deutsche Bank and Credit Suisse banker.

The U.S. Congress and SEC are currently in ongoing discussions to determine how to regulate security tokens as it does for stocks and bonds.

As the license holder, Fincross will offer asset management and investment banking services for institutional investors in security tokens, starting in key countries of the Commonwealth, as well as former Commonwealth nations such as Singapore.

“As an investment bank, it makes much more sense for us to be in an asset that can be bought by institutional investors rather than unregulated assets. Some institutional investors have bought cryptocurrencies, but in very small amounts. And they are increasingly becoming hesitant towards cryptocurrencies,” James said.

“Investors want to buy products that do not exist. If it is something that already exists, they will go to traditional markets they are comfortable with. They will be willing to come to the new market if we provide new regulated products.”

James said the security tokens market will, for the time being, rely on centralized and distributed networks that are interoperable and can be “scaled rapidly.”

This is because the decentralized system has not yet become efficient, fast and cheap, even though the blockchain technology has evolved extremely fast.

“Blockchain is not there yet. Until it develops, security tokens are going to be based on a centralized infrastructure,” he said.