Nasdaq and tZERO bring tokenized securities closer to reality

At the height of blockchain fervor in November 2017, Robert Greifeld — the former chairman of Nasdaq — said that every stock and bond on Wall Street could be tokenized.

Then in the following bear market, blockchain advocate and Overstock CEO Patrick Byrne doubled down on that assertion — claiming that within five years, 100 percent of the stocks and bonds on Wall Street will be tokenized.

Fast forward to 2019, and a flurry of activity in the sector as Nasdaq, Overstock and others push forward in building the market infrastructure that could help deliver the benefits of tokenization sooner rather than later.

Tokenized asset exchanges

Both Overstock and Nasdaq have been developing security token platforms over the past year, with Overstock being the first to launch: tZERO, which went live with limited features last week, aims to become the first US regulated exchange to issue and trade security tokens on the blockchain.

CEO Patrick Byrne, who described security tokens as an "innovation of historic proportions" builds on significant blockchain pedigree — having been one of the first to accept bitcoin through his $1.8 billion dollar global marketplace Overstock in 2014, and then two years later, issuing the first company shares using blockchain technology on a beta version of the tZERO platform.

Only now, however, is tZERO ready for public use, and the exchange will face competition from a growing list of companies aiming to make security tokens the bridge between crypto assets and the legacy system. This includes financial giants like Nasdaq, but also regional stock exchanges like those belonging to Gibraltar and Switzerland, and exchanges from the cryptocurrency world like Coinbase, which has been merging with companies that already have the required licenses and registrations so it can avoid the time-consuming process of applying for them.

This month alone, two more tokenized securities exchanges are launching. In Estonia, the DX Exchange — which is based on Nasdaq’s own blockchain trading technology — is expected to go live and will allow the trading of crypto tokens that represent shares of tech firms listed on the Nasdaq Index. Further south, tokenized security exchange currency.com is launching in Belarus, and will allow traders to purchase tokenized versions of shares and other traditional assets with bitcoin and ethereum.

Both Belarus and Estonia benefit from progressive crypto legislation, but the exchanges will also face competition from those in more restrictive jurisdictions — like the US-based token trading platform Templum, which is expected to launch in the coming weeks, and recently announced a partnership with IPwe that aims to help facilitate the tokenization and trading of the intellectual property market.

Issuance and custody

Alongside exchanges, numerous protocols have shown development progress that promises to enable the easy tokenization of real-world assets; an extensive process that requires advisors, lawyers and regulators to work in conjunction with technology platforms.

Just two weeks ago, IBM revealed that it would be supporting the progress of Securitize — a blockchain startup that helps clients with this process. Through the IBM Blockchain Accelerator, Securitize hope to develop a way to make the handling of corporate debt more efficient. A vision that is also supported through a direct partnership with tZERO.

Shortly before that, competing tokenization platform Tokeny revealed a partnership with deal marketing platform Issuance to help bring in security token investors from the traditional world of finance. And, on the custodial side, Tokensoft, another all-in-one security token platform, rolled out last week what it claims is the first cold-storage custody service designed specifically for security tokens. The wallet is known as Knox, and will allow enterprises to store security tokens and cryptocurrencies in a multi-signature, self-custodial system.

While the overall crypto markets remain in the doldrums from a price perspective, these developments in the security token sector illustrate that work on the fundamental infrastructure is continuing at pace.

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