As the implementation of the token securities (STO) system approaches, competition among brokerages to dominate the market is intensifying. Major firms are accelerating efforts to build issuance and distribution platforms and secure blockchain infrastructure. However, concerns are growing that there are 'no products to trade' in the market. While competition for distribution platforms heats up, the issuance ecosystem is struggling to gain traction, raising fears that the token securities market may become a 'half-baked system.'
According to the financial investment industry on June 8, firms such as Shinhan Investment Corp., KB Securities, Mirae Asset Securities, Korea Investment & Securities, and IBK Investment & Securities are all working to establish issuance platforms, connect distribution infrastructure, and collaborate on blockchain networks to gain a foothold in the token securities market. The KDX Consortium, led by the Korea Exchange and NextTrade, and the NXT Consortium are preparing for official approval regarding a consortium for fractional investment in over-the-counter trading. This competition is heating up as firms prepare to secure market share ahead of the full implementation of the system in February next year.
However, industry insiders emphasize that securing issuers is a more critical task than building platforms. Even if a distribution platform is established, the market cannot function without sufficient products to list. In reality, the token securities market is showing signs of a shrinking issuance base, contrary to expectations for institutionalization.
A notable example is Funble, which pioneered the real estate-based trust profit securities fractional investment market after being designated as an innovative financial service by the Financial Services Commission in May 2021. Funble announced the termination of its services in April, highlighting the challenges faced by issuers in the token securities market.
Industry experts express concerns that even with secured platforms, the lack of tradable products could lead to a stagnant market. The primary reason cited is the high barriers to entry. The approval criteria set by financial authorities are deemed too burdensome for startup-focused fractional investment firms.
To obtain issuance approval, businesses must submit three years of projected financial statements, effectively needing to demonstrate the potential for profitability within that timeframe. However, currently, there are virtually no companies in the fractional investment sector that can achieve stable profits. One industry insider noted, "In a structure where the public offering fee is around 1%, to cover annual costs in the tens of millions of dollars, issuances in the hundreds of millions of dollars are necessary, which is realistically challenging."
Additionally, the structure for issuing non-monetary trust profit securities is designed based on the Asset Securitization Act, placing a significant financial burden on issuers who must directly hold assets. Instead of revising the Capital Markets Act and trust systems, the reliance on the Asset Securitization Act, which does not align with the realities of startups, has increased issuance costs and capital burdens.
This context explains why existing innovative financial service providers are reevaluating their business strategies. Another industry source remarked, "It is difficult to create an independent revenue model solely from token securities. Unlike traditional brokerages that can selectively issue while engaging in other businesses, startups face different circumstances."
Brokerages, on the other hand, have relatively lower burdens. With established business foundations in traditional finance, they can decide whether to pursue token securities projects based on company strategy, even if the profitability is low. In contrast, startups, which initially held a leading position in financial services, now face competition from brokerages that can engage in the same business following institutionalization, diminishing their monopolistic status.
One industry expert concluded, "Ultimately, the growth potential of the token securities market lies in its ability to liquidate non-traditional assets that conventional financial products do not address. If we do not improve regulations to foster a robust issuance ecosystem that allows for a variety of products to be issued, it will be difficult to secure business viability for the token securities market, even after institutionalization."
* This article has been translated by AI.
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