The Old World. What is going on with Digital Assets in Europe?

Europe is an enormous market of more than half a billion people. As small amounts up to 8 million euros may be raised without registration of the offering, it is a very attractive market for international projects looking to reach new investors for their security token offering.

Economic Situation

Currently, the main problem of the European investors is finding the right investment opportunities. After quantitative easing, they are sitting on piles of money, which they cannot put into local economies because they are growing too slow. Therefore, they are very keen to invest their money into overseas projects that can offer 7+% annual yield. There is significant interest in investing abroad among smaller investors as well. Currently, interest rates on bank deposits are negative, which means that people are actively losing money. This makes even common people who have not previously invested in the stock market to look for such opportunities.

Amount of Tokenized Assets

According to the estimates, the total amount of tokenized assets in Europe reached above EUR 500 million in 2020. The main sectors are real estate, natural resources mining, and technology startups. The fact that more traditional sectors are looking to conduct a security token offering, not only startups, is a sign of a maturing market with more experienced tokenization platforms and service providers.

Tokenization platforms

European security token market is one of the earliest to develop. There are plenty of tokenization platforms in the EU but only a few of them have shown real traction and survived so far. This market is moving fast, and promossied high values. That is why it is important to choose wisely the partner on STO market, and not scrood up with the brokerage firm. Among leaders confirmed by business experience and financial success are:

• Neufund and Black Manta Capital Partners, both companies based in Germany;

• Tokeny, which have signed a memorandum with PwC and with the government of Monaco;  

• Smartlands, a UK-based provider known for one of the first real estate tokenization cases; 

• DESICO, a platform focused on small offerings by startups under Lithuania crowdfunding law; 

• Stobox.io, a US-based company with a team from Ukraine, that has been recognized as “Asset Tokenization of the Year 2019” and provides advice to the government of Ukraine in the development of virtual assets legislation. The company provides a comprehensive service asset tokenization service, from legal to technology and marketing. Stobox is also active in the crypto space. The company develops a crypto exchange and issued STBU utility token, which represents one of the few opportunities to get exposure to an exploding tokenization market. 

EU-Wide legislation

There are no specific laws that govern the security token market on the European Union level. Therefore, security tokens abide by the same laws as traditional securities: Prospectus Regulation, MiFID II, Anti-Money Laundering Directive, and others.

The most important among them is the Prospectus Regulation, which defines rules and exemptions for securities offerings. The main rule of the Prospectus Regulation is that the public offering of securities has to be registered with competent authorities. However, it also provides certain exemptions. Two of them are interesting in particular:

• The offering is targeted solely at the accredited investors;

• The offering is targeted at less than 150 non-accredited investors per Member State 

• The offering is under 5 or 8 million euros depending on the specific Member State you launch the offering from.

Therefore, even foreign companies that don’t have funds and focus to register their offering in the EU can raise quite substantial sums from local investors.

Most progressive countries

Although there is no legislation on the Union level, certain most progressive countries have implemented legislation for blockchain technology and security tokens. Market proposal here aggregated in the area of  Liechtenstein, Switzerland, Germany, Malta, and Ukraine. 

Liechtenstein

Liechtenstein is by far the most progressive jurisdiction in the world in terms of virtual asset legislation. “Token and trustworthy technologies act” also known as “the Liechtenstein Blockchain Act” creates a basis for recognition of any type of token based on a legal contract that accompanies creation and ownership rights of a token. This is why it is already being chosen as a jurisdiction for STO by many top companies. 

Switzerland

Switzerland is also in the process of preparing blockchain legislation. Even without legislation, it is extremely progressive in terms of the attitude of regulators and possibilities. It is already legal to incorporate a company with shares entirely on a public blockchain and input share capital in Bitcoins. Hopefully, this trend will continue with the new legislation.

There are other countries also working on legislation for virtual assets and creating ecosystems for STOs, among them are Germany and Ukraine. Malta already has existing legislation - it was the first country to enact one - but its implementation remains problematic, so currently Malta is not one of the European leaders.

Secondary Markets

Despite adverse economic conditions, the tokenization industry in Europe is striving. The only remaining piece of the puzzle is the secondary market for digital securities, which is currently underdeveloped. Certain efforts are present from National Stock Exchanges to list security tokens. In particular, there are projects from the Swiss Stock Exchange and Gibraltar Stock Exchange. However, except for slow-moving national markets, there are also new projects aimed at security token trading. There are two interesting companies here that we are highly recommending to keep attention: a Liechtenstein-based exchange Blocktrade targeted at common investors; and a UK based exchange Archax, which has recently obtained regulatory approval in its region.

Bottom Line

The European digital securities market is on the stage which works perfectly well for collaboration on the international arena. It has a vivid ecosystem of experienced service providers and a large market of hungry investors. Collaboration with markets such as South-East Asia, which started to develop later and gained less experience but contain many good projects with solid yield, is a great way to move forward the security token ecosystem.

We at Stobox are constantly issuing industry analysis and tokenization insights. Subscribe and don’t miss our updates.

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