I have spoken to several of my colleagues in the industry and there seems to be a consensus that for the above reasons, the tokenization industry will emerge stronger after the crisis. Our value proposition will become more sharply focused on the areas where we actually provide huge value compared with the status quo. Has it become significantly more difficult to raise investments for industry development?
I spoke with a venture capitalist last week. He said that most VCs were postponing new investments and instead focused on keeping their portfolio alive. I believe this is a quite general sentiment that we as an industry must take seriously. The tokenization industry suffers (like most other industries) and like any other industry we have to find ways to provide value throughout the crisis – both to survive but also to help the world recover from the economic setback. The STO market was just about to take off when the corona hit the world – is that market drying out now, and when will it be back on its feet and ready for a new take off?
I am not sure the STO market was about to take off prior to the corona crisis starting up. Actually I think the industry as a whole was still struggling to prove its relevance and get its act together to showcase some convincing STOs with real value to both the issuer and investors. This work will surely be delayed but as indicated above, I believe the corona crisis may actually strengthen the tokenization industry and force us to focus on bringing real value to our clients in terms of automation, cost reduction and increased liquidity.
In my estimation, we are looking at a 3-6 months postponement. I believe parts of the global industry will recover faster than expected, but other parts will linger for years. Our technology is industry-agnostic, so we will just focus on those types of industries and investors that are fast to recover. Is there anything that the security token industry can do proactively to help combat the global crisis?
There are some specific application areas where tokenization may provide real value during the corona crisis and actually help the world recover. We actively seek collaboration with companies and individuals who are interested in working on these, such that we can do our part in the recovery. Some of these areas are:
Tokenization is part of the overall DeFi trend, and if you look at the current crisis from a more overall perspective would you agree that something like the corona crisis where suddenly people are unable to meet up and act in the physical world only confirms that digitisation is becoming increasingly important and so are next-generation digitisation like decentralised finance solutions?
- Startup fund-raising: growth-stage startups are severely hit during the crisis. They have invested heavily in future growth and have budgeted with a period of being cash flow negative in order to achieve market domination. But this period will now suddenly be much longer. Token-based equity crowdfunding is surely the answer to this. Many growth-stage startups have a community that may be activated to help save the company and they may be able to obtain bridge investment from retail investors when the VCs have closed their wallets.
- Fund-raising for infrastructure or cultural institutions: many infrastructure-type companies are dying now. With infrastructure implied in the broadest sense possible. The local neighborhood restaurant is closing down. The airline responsible for 20% of a country's connectivity is shutting down (Norwegian in Denmark). A ferry route that is bringing foreign tourists to a local region is shutting down resulting in huge losses for the tourism industry. What if the community or industry that is dependent on the company or operator could equity crowdfund a bridge loan to keep it alive? The security that is issued could contain special benefits for the investors, such as free tickets, free meals, discounts, etc. hence the increased design scope
Yes, certainly. The tokenization industry is 100% about digitization and any industry that has digitization as its basic raison d'être stand to gain from the crisis. All else being equal, it will become more natural for people to take investment decisions without prior face-to-face meetings. The real estate industry is very traditional in this regard and many deals are settled with a handshake. When handshakes are no longer an option, maybe some of these deals can be settled with an electronic signature instead? Do you have any advice for the industry about how to get the most out of the current situation?
Re-adjust your burn-rate to account for lower income during 6-12 months to ensure survival. And sharpen your focus to provide real value, both during the crisis and after.