4-parter on Coinbase “IPO” – Part 1 = 5 Reasons Why It Matters

Coinbase is a US Regulated On Ramp to a global unregulated/permissionless network. If you live in America and are new to crypto, head over to Coinbase. It is regulated and easy. This is why American regulators will not try to kill Bitcoin, despite some temptations to do so; businesses like Coinbase will be a good […]

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Part 4: What changes can we expect in future?

Politicians and media are all over this story like a cheap suit. Much change will come from all of this. Here is my rating (high, medium, low) on 8 possible changes: Front running by buying order flow becomes illegal; high. This part of the story is easy to understand and as soon as people understand […]

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Part 3: Shorting can be a valuable price discovery mechanism if done right.

Hedge Fund used to have a precise meaning. Limited Partners (LPs) invested in Hedge Funds who were bearish in order to “hedge” the rest of their portfolio which was long ie bullish. Hedge Funds then later came to simply mean a bunch of very smart people getting paid a lot of fees by LPs to […]

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Switzerland as the jurisdiction for new blockchain based finance

February kicked off with news that Switzerland now lets tokenized securities trade on a blockchain with the same legal standing as traditional assets. The significance is at two levels. The first level is simply legal certainty. Switzerland has long been officially a multi-currency county, because of an alternative currency called WIR.  The WIR was set up […]

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Part 2: What this reveals about the business model issues of free trading on RobinHood.

When RobinHood first appeared in 2015, DailyFintech wrote RobinHood Freemium could enable a lot of new Low Cost Active Alpha services. We focussed on the free part of the story and guessed at the business model as RobinHood was not being transparent about this. We guessed wrong although now that RobinHood’s business model is in […]

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4-parter on Wall Street Bets vs Hedge Funds. Part 1: Occupy Wall Street gets even.

Some stories are too complex for our 3 minute attention span. For those stories we do 4 parts, one week apart, each a manageable 3 minute type read. Wall Street Bets vs Hedge Funds is one of those stories for sure. Today we start with the populist part of the story, how the Occupy Wall […]

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Equity Crowdfunding Part 2: Innovation from two world’s colliding

The equity crowdfunding market is consolidating (see Part 1). That does not signal the end of disruptive innovation. The wild unregulated Crypto ICO world is colliding with the now more established equity crowdfunding market. The Crypto ICO (Initial Coin Offering) world is bleeding edge and unregulated. ICOs were like the Napster phase of digital music […]

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3 corner fight between Security Tokens, NASDAQ/NYSE and Regional Exchanges

“Going public” used to mean only one venue decision  – NASDAQ or NYSE? Everything else was denigrated as a “regional exchange”. In the past that tended to mean a lower valuation, as you were restricted to only local investors. Or you needed sophisticated investors using tools that could normalise valuations into a single reference currency. That […]

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Are Security Tokens emerging from coma as INX IPO debuts?

TLDR. Well it depends, said the consultant punching the clock. Will Security Tokens enable scammy operators to separate dumb money from their money? Or will Security Tokens power a new wave of innovation to make the world a better place (perhaps via “digital cooperatives”). First, the news, well reported in many venues, that INX Limited […]

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If Security Tokens are in a coma, maybe it is time for a new look at Utility Tokens – did somebody say ICO?!

Are Security Tokens taking a nap or in a coma.001

Before we had STO, we had ICO. Now the STO market is either taking a refreshing nap or in a coma – or punched by the SEC and down for a count of 10.

Before either ICO or STO became famous, somebody pointed out to me that  tokenizing existing assets via what we now call Security Tokens is a big and important change but not as fundamentally game-changing as a totally new tool such as Utility Tokens. Maybe that idea of Utility Tokens is worth revisiting?

This where it pays to understand what happened with Telegram and the SEC. The scale of the Telegram offering (via a SAFT = Simple Agreement for Future Token) had the Utility Token bulls of that era (now very quiet) crowing about how it meant smart big money was flowing in. There was no question that the money was big and no question that the investors were accredited. My take was/is that big and accredited does not always make it smart money.

Anyway, the SEC and the courts have decided on Telegram, even if it will be debated and discussed for years.  You can see why the SEC decided as they did and why they took their time. Telegram is a big and reputable company and lots of money was at stake, not just the initial large amount raised by Telegram. The Telegram GRAM token would have probably generated billions of dollars of trading in GRAMs on secondary and derivative markets. 

STO arose in response to the broken ICO market (which was a response to the broken VC to IPO market). There are two problems with ICO:

  1. Branding. For too many investors ICO means at best a bad deal (at worst it means scam).
  2. The C in ICO means Coin or Currency. If there is one area that regulators look at even harder than a Security it is a new Currency.

Utilities on the other hand are boring and legal. They are really a tool of marketing to reduce the cost of Customer Acquisition as we explored in this chapter of the Blockchain Economy. The SEC has gone on record to say that at least some Utility Tokens are legal. If customers are willing to pre order and pay upfront and if that helps the company raise enough money to deliver as promised that is both legal and good for business. The CEO discusses Utility Tokens with the CMO, maybe with the CFO, and leaves IR (Investor Relations) out of the loop. All investors want to know is how efficient the company’s marketing is.

There are two theories for how this will play out – regulated and unregulated:

  • Regulated.  The markets and infrastructure for the exchange of security tokens mature and we attach lots of things such as revenue share/royalties, or the rights to listen to music, read a report or watch a video. In other words a Security Token may include what we call a Utility Token today.
  • Unregulated. Tokens for what the SEC classes as not a security are bought and sold in the same way we buy and sell other digital assets such as music, writing, video etc.

Yes, it is time for a new look at Utility Tokens, but we should never say ICO again or any three letters starting with I and ending with O that sounds like IPO.

Image sources; Coma & Nap & Boxer

For context on Security Tokens please read the chapter on Security Tokens in our Blockchain Economy book and read articles tagged Security Tokens in our archives.

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