We recently connected with Kyle Sonlin, CEO at Security Token Market (STM), which is focused on supporting the nascent blockchain-based security tokens space. Sonlin explained how the global financial system is evolving rapidly and how security tokens can help streamline many traditional business processes.
Sonlin noted that technology has allowed us to connect people from across the globe via user-friendly social media apps and other Internet platforms. However, we need to do the same now with financial services. Sonlin also commented on how blockchain-powered platforms including security tokens can help us implement solutions that can allow people anywhere to conduct trades seamlessly. Our discussion is shared below.
Crowdfund Insider: What impact do you expect security tokens to have on the capital markets this year and in the coming years?
Kyle Sonlin: Security tokens have the ability to improve our existing capital markets while also expanding our financial ecosystem past traditional jurisdictional constraints. Through smart contract integration, we can automate much of the compliance requirements required by local and foreign regulators, establishing a permanent record of asset transfer that will result in cheaper and quicker investment and trading, creating a much more efficient market. This will be undeniable for the traditional financial institutions, who embrace new technologies that can reduce operating costs at this scale.
But even bigger than that is the impact that security tokens will have on the global financial system, which has never before seen a paradigm shift at this scale. In the traditional public markets, stocks and bonds are rarely traded on an international level – instead, investors are forced to trade on fragmented markets segmented by region. With security tokens, investment vehicles are standardized to allow investors anywhere around the world to exchange with each other.
That means stocks, real estate, art, and thousands of other use cases can now be accessed by investors worldwide. On the flip side, for the first time, many investors outside of the US can now buy and trade USD-denominated assets, like cash flow positive rental properties or dividend-paying equities. For countries with less stable currencies and more volatile stock markets, this access to more reliable US assets unlocks true investment equality and more efficient economic mobility.
Crowdfund Insider: Your colleague Jonah has mentioned that security tokens have the potential to capture a larger market share than Bitcoin’s market cap. Do you think they will be a trillion-dollar market someday and what would be the main use cases?
Kyle Sonlin: I see tokenization technology as the back-end infrastructure that will transform our capital markets. In this way, I don’t believe there are any investment assets that would not benefit from smart contract automation and blockchain-based cap table management. To calculate the opportunity size using this thesis, look no further than the total market cap of equities, debt, and real estate – the three largest asset classes worldwide.
Any of these three verticals has a market cap of well over $100T+, which easily clears the mark, and then some! With multiple tech stocks over the $1T market cap in the public markets already, it seems inevitable for the next generation of innovative businesses to leverage security tokens, opening the floodgates for others to follow suit. Real estate seems to be the use case that may be adopted quickest, as the incentive for the asset owners is currently so high.
As an incredibly illiquid asset with tremendous compliance costs, this use case is primed for disruption. We just recently broke down the tokenized real estate use case on the Security Token Show Episode 91, so check it out on YouTube to learn more about that concept.
Debt is a very interesting use case as well that, like real estate, is not currently traded in an efficient manner. Much of the debt markets are still traded over-the-counter, and are not valued very efficiently due to a lack of financial transparency.
Tokenized portfolios and assets will allow for much easier auditing and valuations for these assets that will not only increase interest, but will prevent fraud like we’ve seen in past decades by creating fully transparent loan terms and bundles. Securitizations that leverage blockchain technology can unlock additional diversity in the debt markets but requires the highest standard of information fidelity to ensure the asset is properly accounting for default risk and other risk factors.
Crowdfund Insider: Tokenization of real-world assets is becoming more popular. How important of a role do you see this being in a digital economy?
Kyle Sonlin: I think it’s essential for the digital economy we’ve cultivated over the past 15 years. Most of the fintech solutions we see on the market today (Robinhood, Plaid, Square, etc) are front-end solutions. They essentially provide a great user experience but are still navigating through antiquated processes established by the banking and financial cohort decades ago. The settlement and clearing process that we still use (T+2 must go!) makes absolutely no sense in today’s climate of high-frequency trading, where thousands of trades are processed every millisecond.
We need to embrace the technology on the back-end as well, which will allow for a much more seamless process, removing the risks of trade freezes and other market quirks like we saw with dozens of stocks during the GameStop fiasco earlier this year.
On top of that, it makes no sense to me that someone living in a different country can go to the grocery store and buy Coca Cola, but they cannot buy the stock. Regional stock markets should not exist in a world where everyone logs into the same Facebook, YouTube, and Spotify. With the apps and websites on our phones and computers, we have connected the world socially, but haven’t yet been able to fully connect the world financially.
Security tokens are the solution that fully connects our digital world. As long as an investor is qualified to purchase and own the asset, there should be no friction for them to do so. This creates a much fairer system that provides the same opportunity for financial independence for everyone worldwide, while also creating a much more liquid market for existing asset owners and investors. With a new influx of capital into in-demand assets, investors will see bigger gains, easier exit potential, and more opportunity for success, regardless of where you’re trading from.
Crowdfund Insider: What would be the top security token projects we should be watching closely and why?
Kyle Sonlin: There are some really exciting projects that are trailblazing for the industry that are absolutely worth keeping on your radar! First off is Curzio Research, a financial media company that completed a security token offering and successfully listed on MERJ Exchange. This one is so exciting for me because Frank Curzio and his team paved the path for others to follow.
He proved that it is possible to crowdfund, list equity on a secondary market, and maintain his status as a private company while enabling full retail US investor access in addition to investors from around the world.
The idea that private US companies could be trading to an interested investor is just such an exciting concept that I always bring the CEO token up when discussing exciting security token projects. It doesn’t hurt that the shares are up 40% since listing, while also paying nearly a 2% dividend, paid quarterly. RealT has also planted the flag in the tokenized real estate industry, selling nearly 90 single-family properties, millions in market cap, which pay 10-12% yearly dividends on top of the equity appreciation. International investors have voraciously consumed these primary sales, which consistently sell out in a matter of minutes.
When looking at the primary fundraise and some of the new offerings coming to market, I really like some of the innovation I’ve seen from Exodus as well as from Infinite Fleet. Exodus is a successful cryptocurrency wallet that decided to conduct a crowdfund sale of its equity through a Reg A+ sale, allowing them to create a Kickstarter-style fundraising campaign, and have nearly completed the full $75M fundraise. This is the first Reg A+ security token offering that was filed to the SEC, and it opens up incredible potential for other issuers looking to follow this model.
Exodus has proved that while this exemption can be tedious, it is possible and can be extremely successful when done correctly. Infinite Fleet is maybe the most novel use case we’ve seen to successfully come to market, led by Samson Mow and the Exordium team. Exordium is selling a security token to raise funds to develop an online multiplayer real time strategy video game called Infinite Fleet.
Investing in this futuristic sci-fi game will provide investors with a revenue share with the developer, allowing investors to buy in at the ground floor and have exposure to the game’s sales one the project goes live. On top of that, Infinite Fleet has sold over 900 NFTs that can be redeemed in-game for exclusive skins and collectibles that can also be traded on a secondary market. I think this is one of the most innovative NFT uses I’ve seen and brings the digital economy together by combining NFTs, esports, and security tokens.
Reminder: none of this is investment advice! I do not own any of the assets mentioned but have worked closely with some of these companies as they’ve explored and innovated in the industry. I’m very excited to see the market grow and love highlighting great developments in the space. Do your own research!
Crowdfund Insider: What are your goals as an organization at Security Token Market for this year and beyond?
Kyle Sonlin: Security Token Market provides the largest breadth and depth of financial data in the finance industry. We integrate directly with exchanges and marketplaces around the world to aggregate security token trading data from over 100 sources while also verifying transactions on-chain. With all of this financial data, we compile industry reports, research, and media content to provide investors and enthusiasts with as many resources as possible to feel confident in researching and evaluating industry opportunities.
We also produce media content targeted toward driving security token adoption, through the Security Token Show, our weekly security token podcast and video show that covers industry news, market developments, and thought leadership. The show has now grown to over 25,000 listeners from over 100 countries.
Other media content like our weekly newsletter, What’s Drippin, and our Clubhouse channel, Security Token Speakeasy, are positioned to provide an opportunity for more casual readers and listeners an opportunity to jump on board and ride the wave alongside us.
Moving forward, our goal is to scale up our operations to provide even better services for our users. We’ve been growing incredibly quickly in recent months, and we strive to focus on bringing new offerings and assets to our platform to keep the momentum going. On top of that, we’ve begun upgrading our platform to provide some exciting new features that I think are really going to be a game-changer for the industry. On top of that, expect our media channels to expand even further! New shows, additional reports, and maybe even some premium content! More on that coming soon.
For now, the best move is to follow us on Twitter (@stomarket), Instagram (@stomarket_), and YouTube (Security Token Market). Check out our site at stomarket.com for the latest prices and market cap of the industry, and don’t hesitate to reach out to me personally if you have any questions or want to hear more! You can find me on Twitter @kylesonlin or in the #miamitech community!