Back in the very early days Blockchain was a thing only for tech-savvy programmers and geeks, with specialized equipments and skillsets due to the fact that it was incredibly hard to interact with the it and was far from being used in day to day life. Even today many people don't know what blockchain is and how it will impact their life for good.

                         All the inefficiencies related to the usage of blockchain has lead to the start of some kind of a race to make the blockchain more usable for the general public so that transfer of value and other tasks on blockchain which were previously difficult, becomes easy. This is the main driving force behind the recent ICO boom we have seen since the start of early 2017.

                         All this is good as it has revolutionised the way people are raising funds for their innovative projects but in the midst of all this the global securities market has yet to participate in the blockchain revolution. So why it hasn't happened yet 🤔 uum well, there are a lot of complexities involved here which have to be addressed first before securities steps into blockchain in the form of security tokens which we will see in this blog. But first thing first, for those of you, who don't know what security tokens are let me explain to you in brief.

                         We may all be aware that Utilities tokens today's ICOs are offering are like rights to use the software or avail services provided by them now or at a later date in future. In contrary to this, Security tokens are a very different breed of tokens. Different in the sense that they are like equity stakes in an organization or a claim to the wealth generated by the activities of that organization offering the security tokens. I hope you have grasped the concept a bit. If yes let's move forward.

                         Before we can answer that we need to know the range of problems in different security markets. There are basically three types of market for securities and they are as follows:

• Primary market - It is here companies offers registered securities through an IPO and goes public. This is a costly process and can account for 5 - 10% of raised amount.

• Secondary market - The securities issued in the primary markets are sold here, an example of a secondary market is NYSE. This market provides high liquidity for securities and in here retail investors can participate. Cost here is very less compared to primary markets.

• Private market - This market is not accessible for everyone and mainly for accredited investors. As the no of investors in this type of market is lows it faces problems like lack of sufficient no of investors which ultimately leads to very low liquidity and no robust market mechanisms in place.

                         If we carefully observe the above markets we can see that is market suffers has it's own problem and the worst is private market with a very limited options available for investors.

Severe Problems

• Lack of liquidity - although this is not in the case of a secondary market but, the private market suffers severely from this and to account for this lack of liquidity private securities are often discounted preventing issuers from capturing the full value of the underlying assets.

• Middleman - to account for the inefficiencies like trust issue between parties, the securities market require various middleman to keep it going smoothly.

• Costly - The process of tracking trade activity is manual and costly. Also, the process of launching an IPO in the primary market is very costly because of the complex process involved.

                         All the problems we discussed above can be solved with blockchain technology, if we tokenized securities which can potentially move them Low from Liquid / High Cost-Effectiveness to High Liquidity / High Cost - Effectiveness as you can see from the diagram below.

source

                         This will unlock billions of dollar in value.Apart from this Blockchain enable trades to occur without any middleman. Also as it is an immutable ledger, processs of settlements, clearing and auditing of transactions can also be reduced significantly thus increasing the efficiency.

                         Issuing a security token is not as same a issuing a utility token as there are lot of policies and rules to be followed and therefore it is a much complex process and require different treatment. Most of the ICOs nowadays are being launched on top of Ethereum Blockchain as it makes the process of writing smarts contracts relatively easy, then implementing it from scratch. Also unlike securities token, utility tokens by

                         Also previously there has not been any proper platform for companies to launch their securities tokens which have all the rules and regulations provide by SEC baked in. But as of 2018, we have some platforms which have come forward with innovative solutions to bring the securities market on the blockchain. One of such projects is Polymath.

                         Polymath is a platorm which gives legally complaint securities access to Blockchain with a network of services designed to lowers associated transactional costs over time.

• It provides a decentralised protocol for trading securities token launched on polymath platform.

• Provides all necessary KYC related services required to launch and trade security tokens.

• Provide legal delegates who can bid on new issuances to represent issuers on offerings to be done in a regulatory

compliant manner.

• Matches issuers with developers who can create STO smart contracts.

                         Platform like polymath can transform the securities market by giving an easy entry door for existing securities and thereby solving major some of today's major problem in securities market primarily in the private market.

                         Currently the entire crypto market is around $300 billion which if you compared to the securies market is nothing.

As of 2016 Global securities market worth in Trillion with

• Equities - $67 trillion

• Debt - $99 trillion

• Derivatives - $1.2 quadrillion
  source

So think for a while, what will happen when the global securities with trillion of dollars step into Blockchain...Thank you.

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This article was written by @pankajborah and @flamingirl.

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