TokenSoft, a leading security token issuance and asset servicing platform, announced it is launching TokenSoft Investment Accounts as a technology solution providing self-managed wallets for investors in security tokens.
It’s the latest of numerous announcements by vendors in the digital asset issuance and servicing space, a market which has become the newest battle-ground in blockchain with platforms vying for market share through offering increasingly sophisticated platforms for issuers and investors alike.
With this announcement, the company appears to be taking aim at a key challenge in the security token and crypto industry which is that the user experience in accessing and managing digitized assets tends to be a poor one.
This reflects a space where users have traditionally have been blockchain technology savvy, with newcomers expected to “learn the ropes” of how to interact with wallets and smart contracts directly.
Now that digital assets are starting to hit mass-appeal and need to attract both investors and issuers who are more at home with a typical brokerage experience, companies such as TokenSoft are increasingly moving to emulate online platforms in traditional finance such as TD Ameritrade and Charles Schwab.
TokenSoft’s Investment Account service provides issuers and their investors with a number of enhanced capabilities, such as a native, brokerage-style experience for prospective investors and integrated reporting for issuers delivering financials and other disclosures to investors.
For Jordan Davis, VP of Business Development at TokenSoft, these new features represent a challenge to traditional brokers as well as digital asset platforms - “the ability for non-technical individuals to self-custody is going to change the way assets under management models work in traditional finance. Wallets like TokenSoft Investment Accounts will put pressure on financial institutions to provide better client servicing, value-add services, and investment management tools to earn investors’ business.”
Engineering Degree No Longer Necessary To Access Funds
Another user enhancement that TokenSoft is introducing, which has sorely been needed in the digital asset world, is an improved user experience in relation to digital asset custody. That is to say, users can access their digital assets without needing to have an engineering degree to work out how to do so.
Digital asset custody is a unique challenge in the digital asset world, where unlike traditional securities, digital assets are bearer instruments. With bearer instruments ownership is determined by who has physical possession of them – or in the case of digital assets, access to the keys. However, digital keys are inherently challenging to manage which has led to numerous cases where individuals have had their keys stolen or hacked. While third party wallet management software does exist to manage the keys, this software can be cumbersome to use (e.g. Metamask) or can be subject to security challenges.
While custody services have started to emerge, which outsources key management to third parties, there still remains some legal challenges concerning aspects such as treatment of custodians in the case of bankruptcy.
TokenSoft’s Investment Account provides users with a self custodied wallet (i.e. they are in charge of their wallet as opposed to outsourcing to a third party). However, rather than introducing complex and cumbersome third party wallet management tools, they have instead been able to keep the whole experience within the browser by hiding complexity of managing a wallet from the user while maintaining security. The team likens the approach to password management tools such as LastPass. From a user’s perspective it means that accessing their funds is as simple as accessing their brokerage account.
“We’re excited to bring a multi-signature wallet security packaged in a self-controlled, easy to manage brokerage-style experience to the over 100,000 investors using our platform.”
Enhanced Dividend Distribution
The Investment Account also offers seamless access to dividend distributions and automated reinvestment opportunities, thereby addressing an existing point of friction both in the traditional securities brokerage world as well as in the emerging the digital asset field.
Mason Borda, CEO of TokenSoft, speaking to Forbes.com, highlights that in the traditional securities setting, dividend payments are made to investors’ brokerage accounts via ACH wire payments.
However, in half the cases, the investor’s (or brokerage’s) bank information is out of date resulting in the payment failing. With the cost of each fail being as much as $6, when there are hundreds of thousands of investors involved, the cost multiplies and the inefficiencies of today’s process leaves money on the table.
Whereas in the digital assets world, where dividend payments can be made in digital form via a stablecoin, another problem emerges; issuing a dividend to multiple investors involves submitting a large amount of traffic onto the public network. For an issuer with a thousand investors, it must first convert dividend payments from fiat currency into a stablecoin, and then assign the stablecoins to the investors’ wallets. That process can generate several thousand smart contract transactions at once. When considering that the Ethereum network is only capable of processing 15-20 transactions per second — and to secure priority over other transactions on the network means paying more in fees — it becomes clear that network speed represents a major throughput bottleneck, not to mention financial impediment, in this dividend issuance process.
TokenSoft, on the other hand, has sought to solve this by reversing the distribution model. Instead of a push based model where tokens are delivered to wallets, users are instead able to access a bank of dividends — secured and governed by a smart contract — which user can draw from.
Whats more the intelligence in the smart contract can provide enhanced capabilities such as automated dividend investment capabilities. This enables users to participate in re-investing their dividends to buy more digital assets via a Dividend ReInvestment Plan (DRIP), something that is common in asset servicing in the traditional financial world.
TokenSoft have also announced their support for both the Ethereum platform as well as public network provider Tezos through two token standards – the ERC-1404 and FA 1.2. The user experience enhancements that TokenSoft have introduced means that users will not necessarily be aware of which underlying network they will be using, similar to today where an investor doesn’t know, nor care, what the underlying technology is supporting their stock and bond investments
Tezos has been in the headlines recently owing to an announcement by transfer agent Vertalo that they will be transferring their current digital assets away from the Ethereum network to Tezos and making the Tezos network the default network for users to create new security tokens. That's good news for Tezos.
Battle Of The Tokenization Platforms
Tokenization platforms have emerged as the new battleground in the hotly contested space of digital asset tokenization and brokerage platforms. As the attention in blockchain in financial services has moved away from the underlying protocols it is increasingly focusing on the digital assets space, and specifically how to provide a seamless and familiar experience for customers that abstracts away the actual underlying technology.
It’s an area of the blockchain world that has forged together teams that have come from a diverse background of cryptocurrency experts, distributed systems technologists as well as from traditional areas of finance such as broker dealers, investment banking, wealth management and custody.
Earlier this month, blockchain based compliance and financial markets infrastructure startup Securrency Inc announced that it had completed a $17.65 million Series A funding round and partnered with traditional financial services player WisdomTree to create and globally distribute new types of financial products based on digital asset technology.
Asset digitization is already demonstrating how new types of financial products can be created using the technology which were not economically feasible to do with the previous generation of technology.
For example, on January 10th, NBA's Spencer Dinwiddie announced the imminent rollout of a bond, issued through the Securitize tokenization service and provided on his DREAM fan shares platform. The “Dinwiddie bond” seeks to securitize his multi-year player contract into a financial instrument that fans are able to invest in.
Enabling Technology, Looser Regulation, More Tokenization
The tokenization platforms have a strong tailwind from a general relaxation by governments across the world towards the rules restricting unsophisticated investors in investing in the private capital markets. This has led to a surge of demand for unregistered securities. For example, in the United States, over $1.7 tn of new capital was issued under Rule 506/Regulation D in 2017 alone.
The Securities And Exchange commission is also proposing to further relax the accredited investor status which governs who is allowed to invest in the registration exempt private securities market. This is a development that has broadly been supported by investors and issuers alike, but one that Securities and Exchange Commissioner Allison Herren Lee has been highly critical of.
With demand for private capital increasing, and tokenization and servicing technology reducing the cost of issuance and servicing of digital assets, the future seems bright for digital assets. That has caught the eye of large custody banks such as State Street, the world’s largest custodian, holding the equivalent to 10% of the world’s assets. The bank has been vocal on the opportunity that it sees for digital assets and the inevitability of these financial securities becoming mainstream.
With TokenSoft’s announcement, it seems that we’re that one step closer.