According to a report conducted by BlockState, the STO industry has grown from five STOs in 2017 to 83 in 2019. Whether the growth trend will continue will mostly depend on investor confidence and regulatory developments.
Switzerland-based securities tokenization platform BlockState published a study showing the significant growth of the security token market. According to the report, there were 64 successful STOs so far, which raised a combined $1 billion.
BlockState analyzed data from more than 120 STOs. The study looked at global data and included running as well as planned offerings. It investigated specifically offerings that were legally classified as securities offerings. ICO data was not included.
STO fundraising volumes have grown from $65m to $1bn within two years
The findings show a rapidly growing market. In 2017, there were 5 STOs worldwide, with a combined volume of $66 million. 2018 already saw 35 STOs with a total volume of $435 million, almost seven times as much as in the previous year. For 2019, BlockState predicts a total of 83 STOs.
At this point, STOs comprise less than 1 percent of all offerings conducted, including both IPOs and ICOs. However, the benefits are enormous so the industry will likely continue to grow.
BlockState CEO Paul Claudius comments: “Tokenization has often been hailed as the solution to all the problems related to ICOs and utility tokens. However, one has to keep in mind that the market is still maturing. It is really exciting to see that major financial players like solarisBank or the Swiss stock exchange are building solutions to integrate this technology into the existing market infrastructure. At the same time, increased demand for token-based fundraising can be observed among issuers and investors.”
The 5th Global ICO/STO report released by PwC and the Crypto Valley Organization at the end of the last month had a similar message. As regulations are being strengthened further and larger regulated exchanges start launching security token trading platforms, the still nascent industry will get more tailwind, states the report.
Five jurisdictions account for 75 percent of issuances; equity the most common asset class
BlockState’s report also found that 75 percent of all STOs so far were issued in only five jurisdictions: USA, Switzerland, Germany, UK, and Estonia.
Company equity has been the most common asset class with 46 equity tokens accounting for a total volume of $623 million. Asset-backed securities ranked second with 12 tokens issued and a total fundraising volume of $118 million. So far, 77 percent of all STO funds were raised in financial industry STOs, followed by the real estate sector with 11 percent.
That might change in the future. The global real estate market is larger in volume than both equity and fixed income markets together. Moreover, as real estate is a rather illiquid asset class, the benefits of tokenization offer greater value.
Future growth will depend on regulations and investor confidence
The report is mostly quantitative and looks at past and present projects. While it shows the growth trend over the last two years, the numbers do not allow for any future predictions. Anyone who would have used ICO numbers from 2016 and 2017 to predict industry growth would have gone wrong.
The rise of STOs will largely depend on two things: Regulations and the built-up of a secondary market. At this point, it is difficult to predict where either of those is heading. The future of the industry will not depend on how many businesses are going to issue tokens but on the willingness of investors to buy and trade and the ability of lawmakers to integrate the new technology in the existing economic system.