“What are the biggest challenges for STOs and when can we expect its mass market adoption?” It’s a burning question for 2019 that Kate Goldfinch associate editor TFT put to Dave Hendricks, CEO and co-founder, Vertalo
The biggest challenge to the adoption and success of security token offerings (STOs) is a market perception of high cost and low liquidity.
Buyers of any new product or service often wrestle with issues related to price. Price sensitivity, often referred to as ‘elasticity of demand’, is strongly correlated with the availability of other options to potential buyers. This elasticity of demand problem impacts the two potential security token offering beneficiaries: Issuers and Investors.
Potential issuers of STOs – businesses raising money or fractionalising assets – have many options in the market with well-established pricing and processes. Adoption by issuers will not increase before outcomes (such as liquidity) become more reliable and offset increased implementation costs and risk.
Potential Investors in STO-based offerings have a wealth of investment vehicles to choose from. Demand elasticity will only favour STOs when these new offerings provide alpha that is higher or more reliable than other investments. Very few investors will purchase STOs based on the novelty of the delivery vehicle, and even fewer will invest in small token-based funds with questionable secondary liquidity regardless of how they’re issued.
Once issuers bring higher-performing but often illiquid assets – such as debt and real estate – to the market via efficient, transparent, and competitively-priced STO processes, more investors will recognise (like many of us already have) that this technical innovation is about unlocking investment opportunities that were previously unavailable to mainstream investors, not about funding Lamborghinis or yacht parties.