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Between SEC crackdowns on unregistered digital securities, and the death of the ICO, the cryptocurrency industry has been slowly dragged into compliance—some might even say legitimacy.
It’s an evolution of the space that blockchain startup Securitize takes very seriously. The Coinbase-backed firm aims to become the premier platform for the issuance and management of digital securities.
And, a few weeks ago, Securitize became the first blockchain-based company to become a registered transfer agent with the SEC, which means it can now act as an official keeper of digital records for certain securities registered with the Commision.
It’s a pretty big deal, according to Securitize’s general counsel, Brian Farber. “Securitize becoming a transfer agent was a necessary and logical next step to help align our industry with its true intention, which is to make all the world’s securities digital,” Farber told Decrypt.
It’s his company’s position that old-fashioned paper securities are simply too expensive and involve too many steps, while digitizing assets can lead to safer and more secure trades. And the road to digitizing these transactions through blockchain goes through the SEC.
“Regulation has always been of paramount importance in the private securities industry, and there’s no reason why blockchain technology should change that,” Farber said. “We believe digital securities can make the enforcement and application of compliance more effective.”
Compliance is certainly something the crypto industry has hard to learn the hard way. Many crypto startups, such as Kik, Paragon, Airfox, Gladius Network and others, have learned too late that the SEC is not interested in playing games with digital assets.
Nevertheless, Farber believes the future of securities is digital, and is confident Securitize can help blaze a regulatory-compliant trail: “Interoperable digital systems are fundamentally better from a practical and historical perspective,” he said. “Look at any industry that’s gone through the transition: telecom, music, etc. The private securities market is still a disparate, bloated and mostly analog space.”
Farber believes paper securities will—and should—become a thing of the past, adding that the process behind paper securities is not as safe and very pricey given the number of steps required to verify assets.
“Anytime something as complex as private securities transactions are handled manually, it requires multiple layers of checks and balances,” he said. “In this case, the cost to effect a transaction can end up being very time consuming and expensive.”
Digital securities, on the other hand, use smart contracts to handle much of the action related to the transaction, Farber explained. They can be traded via blockchain, and reduce most of the friction associated with paper securities.
Securitize recently opened offices in both New York and London, growing fast in a market that hasn’t been kind to startups over the last couple years. Maybe there’s something to be said for playing ball with regulators after all.