Jun 24, 2021
Digital securities represent one of the most promising use cases of blockchain.
For those unfamiliar, digital securities are real-world financial securities – including stocks, bonds, and derivatives – that are digitally represented on a blockchain. While using a blockchain infrastructure, digital securities are still in the purview of traditional securities laws.
Many reputable blockchain startups and even traditional companies choose to leverage Algorand to issue digital securities. Here are some of the most relevant case studies and examples of digital securities on Algorand.
In March 2020, Realio, a digital asset issuance and trading platform focused on real estate private equity, partnered with Algorand to use its ASA standard to tokenize its network. The Realio Security Token (RST) is built on Algorand’s Layer-1 blockchain and represents the first digital asset that acts both as a hybrid security and utility token for the Realio network.
The RST tokens provide ownership and profit share rights, as well as staking and utility features to encourage the participation in network validation, voting, and more.
The Realio platform is an end-to-end software as a service (SaaS) platform for the issuance, investment and management of digital assets. It merges access to a decentralized exchange with the features of an innovative investment platform for real estate private equity.
W. Sean Ford, chief operating officer at Algorand, commented:
“Algorand's protocol was designed for decentralized financial applications and networks of the future like Realio, and we are pleased to support the long term value their initiative will provide. Combining Algorand's simplified asset creation, instant economic exchange, and immediate transaction finality with Realio's groundbreaking token issuance network is a significant step forward in defi compliance and innovation.”
The RST tokens were offered via the Reg D 506 (c) and Reg S exemptions, thus allowing investors all over the world to invest in the security token.
In 2019, Algorand partnered with Securitize, one of the most important players in the digital securities space. The deal allows Securitize’s digital securities protocol to be supported on the Algorand blockchain, enabling Securitize users to issue, trade, and conduct corporate actions involving digital securities.
Thanks to the partnership, several Securitize clients, including Exodus and World Chess, selected Algorand as their blockchain of choice to issue and manage security tokens.
Exodus, one of the most popular multi-currency wallet providers, issued EXIT tokens as ASAs representing shares in the company.
The cryptocurrency company closed its Regulation A public offering at the beginning of May 2021, distributing EXIT tokens representing Class A common stock. Investors who bought the tokens now hold shares in the company and can access them either through their Exodus Wallet or via their Securitize account.
Exodus issued 2,733,229 shares and raised $75 million. The company said it would make secondary trading available through an alternative trading system (ATS) like tZERO.
Securitize is registered with the Securities and Exchange Commission (SEC), which allows its clients like Exodus to issue and sell tokenized equity in a transparent environment that focuses on regulatory compliance.
Speaking about the public offering organized in the April-May period, Exodus COO Sebastian Milla Goni stated:
“This is a compliant, transparent public offering by a profitable company with a working product. What better way to encourage product loyalty than by letting our customers own part of our business? There have been other Reg. A offerings, but this is the first offering of common stock that also has a digital representation by a token on a blockchain.”
For those unfamiliar, Regulation A (Reg A) contains rules offering exemptions from the registration, which enables certain US-based companies to raise funds by selling securities without registering them with the SEC. Last year, the SEC raised the maximum fundraising limit from $50 to $75 million.
In 2019, World Chess, the company with the rights to broadcast the World Chess Championships, announced its plans to hold a hybrid Initial Public Offering (IPO) by selling 5% of its company in the form of security tokens built on Algorand. The digital securities offering took place last year.
World Chess acts as a media agency and a web-based gaming firm. Every year, it broadcasts the World Chess Championships and other FIDE (from “The International Chess Federation”) events. It also provides a gaming platform for users to compete by playing chess.
The company decided to turn to digital securities through Securitize and raise capital by selling Algorand-based security tokens. During the offering, CHESS tokens were made available to accredited investors located in the US and European Union (EU). The tokens represent ownership of World Chess shares.
World Chess CEO Ilya Merenzon said that the majority of the funds raised would be reinvested to develop chess as an e-sport.
Speaking about security token offerings, he told CNBC:
″[This is] a pioneering financial innovation, (and) one, I believe, many companies will use to raise funds in the future.”
Algorand’s relationship with World Chess went even further, with the blockchain project founded by MIT Professor Silvio Micali becoming an official partner of the FIDE Grand Prix Series.
Algorand is an excellent choice for digital securities issuers, as it is an unforkable, decentralized network built around speed and efficiency. It provides almost instant transaction finality and is now scaling to increase its performance from 1,000 to about 46,000 transactions per second (tps).
With its Role-Based Asset Control (RBAC) options, Algorand can be used to issue security tokens to be sold in certain jurisdictions and to a certain group of investors, such as accredited investors.
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