Security tokens (ST), which tokenize securities such as real estate beneficiary rights and allow small-scale investment, are expanding their market toward widespread adoption.
In December last year, Osaka Digital Exchange (ODX), founded by the SBI Group and Sumitomo Mitsui Financial Group, began operating its secondary market service "START," further increasing momentum.
We spoke to ODX's President and CEO, Hitoshi Murasaki, about the future of ODX and what kind of catalyst is needed to further popularize ST.
Crypto assets have spread a concept that is different from existing finance
ODX launched "START" in December of last year as Japan's first secondary distribution market service for ST. How do you feel looking back from the time of its release to the present?
Kimio Mikazuki (hereinafter Mikazuki): We started the project without any clear future for the distribution of ST.
For example, in the case of real estate fractionalization products, we need to collaborate with various stakeholders, such as asset management companies and trust banks that create them, securities companies that solicit and sell them, and platforms that provide the system infrastructure using blockchain on which ST is recorded.
We need to standardize the product specifications with these companies in mind. This was the biggest obstacle, but in order to standardize, we reached out to industry stakeholders and held a forum for discussion.
However, each company has different systems and business flows, and accordingly, the contracts and other arrangements differ depending on the project. For example, the arrangements between a trust bank and a securities company for one project may be different from those between a trust bank and a securities company handling another project.
It took time to understand these circumstances, and it took about a year and a half to standardize the product and business process. We received a great deal of cooperation from all the stakeholders at a stage when we were still not sure what we could do with the market. We are truly grateful.
ST has the advantage of reducing costs for issuance and management, and making it easier for a wider range of investors to invest due to the smaller amounts that come with tokenization. What do you think is the biggest benefit of ST, and what are your expectations?
Mikazuki: When talking about the meaning of tokenization, for example, crypto assets are of course data on the blockchain that anyone can see.
Basically, even individuals can own wallets. The moment you put crypto assets into a wallet, they leave the exchange and are transferred to the individual's control. This is revolutionary compared to the various products managed by existing financial institutions, and I believe that it is a concept that crypto assets have spread.
Also, from the perspective of the principles of blockchain, tokens can be broken down into extremely small units. There may be fees, but it is unlikely that we will face a marginal increase in costs.
Also, in the case of blockchain, everyone can share the same data through a distributed ledger, so the idea is the exact opposite of existing financial systems such as the heavy and extensive systems of banks. I believe that this idea will be a great advantage in transferring value and will have a positive effect on ST.
When I heard that legislation was being developed for ST, I immediately thought of creating a secondary distribution market. However, there are still many things that need to be sorted out, such as issues with regulations and tax systems.
For example, ST can only be operated on permissioned/private blockchains. To take advantage of the benefits of blockchain, we would need to utilize a permissionless/public blockchain, but this is currently a very advanced topic and there are a number of issues that need to be resolved.
However, I personally believe that someday time will prove it, and that in the future ST will be issued on a public blockchain. To achieve this, we must ensure investor protection to prevent fraud, theft, and unfair transactions, as well as anti-money laundering measures.
But this is an extremely difficult point, since too much regulation will make it boring, and too much freedom will increase the risk of abuse. How to strike this balance will be the focus in the future.
