Throughout the past few months, Securitize has been consistent in publicly using the term ‘digital security’ instead of the more common term ‘security token’. While the two terms refer to the same thing, Securitize recently expanded on the practical reasoning behind their strong preference.
Why ‘Security Token’ is the Current Winner
As the financial securities industry continues to integrate blockchain technology, a debate concerning the appropriate nomenclature has emerged.
Financial securities involving stocks, bonds, equity, investment funds, real estate, even ownership of famous art work, are all becoming tokenized.
The majority of those who support this rising industry use the term ‘security tokens’. It seems logical: the most recent major wave in blockchain technology involved the infamous ‘utility token’— a token which provided a certain utility in a specific ecosystem.
The transition to ‘security token’ seems fitting. Followers of the blockchain space understand what a ‘token’ is, and since they tokenize securities, the term ‘security token’ appears to be a natural evolution of the terminology.
The team behind Securitize disagrees however, and with reasoning worthy of legitimate consideration.
Why Securitize uses ‘Digital Securities’ Instead of ‘Security Tokens’
In response to the debate, Securitize tweeted their stance as early as mid-October:
“Yes we are going all-in on this one. Digital Securities Offerings (DSO) coming your way.”
The reasoning, says Securitize, is due to the primary target audience of tokenized securities: traditional investors.
Rob Nance, Managing Partner with CityBlock Capital, explained such reasoning during a panel discussion at the Monster Digital Securities Event:
“The large majority of our investors are very traditional investors. They’ll be people that say ‘I don’t believe in cryptocurrency’, but they want exposure to the blockchain space. So we don’t use ‘security token’ and I think that as an industry, we have to kill the term.”
In the same discussion, Securitize President and Co-Founder Jamie Finn reaffirmed the importance of accounting for the investor’s perspective in this young industry. He believes the term ‘digital security’ does just that.
“Whatever we’re doing needs to be fundamentally better than what exists today. So real estate is an example where it’s a confusing market, there’s no transparency, it’s very opaque, you don’t know what’s going on, it’s hard to keep track of. And so tokenization and digital securities offer a different and better experience. I think if the things we’re creating aren’t better experiences for investors, we’re doing the wrong thing.”
Regardless of which direction the debate takes, one note is worthy of mentioning. While the industry decides on its terminology, the technological innovation behind that terminology is here to stay. Ensuring that it is understood— so it can be properly implemented— is a challenge that the industry will likely have to tackle in a collective manner.
What do you think of the stance on ‘digital security’ over ‘security token’ as supported by Securitize? Which do you prefer, and why? Let us know what you think in the comments section below.
Image courtesy of YouTube.