Regulatory progress may lay the base for a revival of blockchain-based securities such as tokens and ICOs.

The year 2018 marked the epitome of the initial coin offering (ICO) market. However, 2019 proved to be its nadir in more ways than one. Dollar volumes of coin issuance plummeted on the one hand.  While the SEC stepped up its prosecution of fraudulent and irregular blockchain coin issuances on the other.

“The sheriff has come to town,” says Thought Leader Aaron Kaplan. (SECURITIES.IO)

Traditional securities the way to go

According to Kaplan, the SEC’s strategy to crack down on digital assets and apply the rigor of traditional securities’ regulation to blockchain securities is a welcome move.

He likened it to the days of old when the criminal excesses of “bucket shops” yielded to regulation through securities law.

“The same year that ICOs peaked at $7.8 billion, the traditional US securities industry raised $2.4 trillion,” observes Kaplan.

Therefore, blockchain securities will only come into their own provided they function inside of a mature public market and an efficiently regulated ecosystem.

Only then will the financial industry reap the potential benefits of efficiency, lower costs, greater transparency and risk mitigation from blockchain securities.

Regulatory progress

What’s encouraging is the progress made in developing the regulatory structure. Kaplan observes that the SEC and the Financial Industry Regulatory Authority (FINRA) have established guidelines in the four areas of distribution, custody, reporting and record-keeping and specific processes.

“The necessary U.S. framework is finally in place to allow regulated, public trading of blockchain securities to blossom,” observes Kaplan.

Moreover, in addition to regulatory progress, companies have created the necessary infrastructure to take the digital assets market to the next level.

Will blockchain deliver?

The question is, will the payoffs from blockchain securities be worth all these efforts?

The answer: the blockchain securities market could raise huge sums of money. This is provided it achieves its promised efficiency and eliminates most of the cumbersome systems in traditional markets.

Secondly, smart oversight will ensure compliance and liquidity.

Blockchain securities to become mainstream

“For blockchain securities to become a mainstream asset class, they can’t remain on the island of personal wallets,” says Kaplan. “They need to be bought, held and sold by retail investors, institutions, and advisors through traditional trading systems and brokerage accounts. That could happen as early as this year.”

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