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Security Token Offerings (STOs) to Democratize Asian Capital Markets

Tokenization is paving its way to the Asian market that carries huge potential in the fractionalization of both Digital and Traditional assets. This will largely help asset owners to increase their liquidity without selling the complete asset.

According to a report by HKbitEX, if we only target real estate, private equity, structured finance and debt offerings in Asia then, there is an addressable market of 7.5 trillion USD. The Asian market carries huge potential as tokenization of these valuable assets will entirely change the dynamics of these industries with increased asset liquidity.

STOs Growth Potential in Asia

With a $7.5 trillion addressable market, many illiquid types of assets including private equity, fine wine and real estate can easily be tokenized with a proper framework to provide liquidity for investors from all across the globe.

Professional service providers and big exchanges have to step up to introduce a digital capital market where STOs can provide freedom to the asset owner as well as the investor to easily buy, sell and hold specific equity. 

If we only speculate on the real estate market then, the private real estate market is 32 times larger than the public market. As of 2021, the funds collected by STOs globally are above $360 million while the multi Trillion Dollar Asian market still carries a lot of potential for STO space. 

Suitable Asian Sectors for STOs

There are many illiquid assets in the Asian market that are suitable for Tokenization including private equity, real estate and intellectual property rights. However, Asian countries are still lacking behind in providing a suitable framework for Security Token Offerings.

Taiwan and Thailand were two of those early bird countries that published a legal framework for STOs. Despite this, the exchanges and firms were not really interested in blockchain-based security listings.

According to Taiwan’s Financial Supervisory Commission, the blockchain companies in Taiwan are currently focused on issuing utility tokens rather than security tokens. Hence, a reliable legal framework is still needed for the regulation of STOs in Taiwan.

Going forward, debt STOs will have the biggest impact on the global STO market and Asia, followed by structured finance, such as mortgage-backed and asset-backed securities. Bonds are different from equities and they also have less complex factors and carry relatively lower risks. Hence, bonds can easily be tokenized to raise huge capital using STOs. 

STOs Trend in Hong Kong

Hong Kong is known as the Global Financial Centre because of its lenient laws and framework for financial firms, exchanges and trading companies. 

The Chairman of Deloitte China, Dennis Chow, is also concerned about the future of Hong Kong as a Global Financial Centre. According to him, the country has to be ready for the digital economy with the Tokenization revolution which is going to largely change the face of financial markets. 

Securities and Futures Ordinance (SFO) of Hong Kong defines a number of categories that may be considered securities. A security offering will likely fall under one of those categories. The Securities and Futures Commission (SFC) must approve any offering document relating to a security token offered publicly in Hong Kong.

Democratization of Capital Market Access

As of now, the Asian market is pretty restricted for locals only, and many investors who are willing to invest in the real estate or equity market are not able to directly invest in Asia. Tokenization will democratize this market for global investors to bring in huge capital.

Security Token Offerings (STOs) is the most reliable solution for these markets when it comes to the fractionalization of these assets. Ultimately, Asian countries will understand and accept the regulatory framework requirements for STOs and asset owners will be able to publicly sell their equities in the form of tokens. 

Bottom Line

“Tokenization may not be able to reap its full benefits until global regulatory alignment takes place, including free and international exchange of security tokens.  It is encouraging to see that industry participants and regulators around the world are working together in the right direction.” – Douglas Arner, Professor in Law at the University of Hong Kong.

Asian countries are a land of opportunity with Trillions of Dollar in assets that can be tokenized for liquidity and investments. The STO market is still being introduced to Asian regions. STO trading platforms need to build their credibility in these areas, and investors are yet to be educated.