Guest post delivered by Stobox.
The asset tokenization industry is currently experiencing strong growth. More tokenization-related organizations are emerging, and more and more projects are raising millions of dollars during STOs. Just a quick fact: the global tokenization market size was USD 2.3 billion in 2021 and it is predicted growth is up to USD 5.6 billion by 2026.
At the moment, one of the most suitable regions for holding a security token offering is Europe. Local authorities are seeking to build a favourable policy regarding the STO regulation. Many popular tokenization-related projects also come from Europe. Stobox, an award-winning company that provides consultation services in the field of asset tokenization, analyzes the STO market in Europe, its regulation, and prospects in this article.
Current tokenization market in Europe
STOs in Europe are developing quite quickly. In total, over the past 3 years, from 2017 to 2020, the number of tokenized assets has grown several hundred times. This trend will continue in the future. According to PlutoNeo and Tangany’s research, Europe is set to see an STO boom in the next five years, with a total market volume of more than €918 billion by 2026. Regarding the future growth of security tokens, it is estimated that the growth rate will be roughly 81% each year from 2021 to 2026.
This trend is explained by the growing interest in cryptocurrencies and tokenized assets, which offer high liquidity and a way to save and increase funds for investors of any scale.
Regulation of STO in Europe
With the growing popularity of cryptocurrencies, ICOs, and STOs, European authorities decided to create unified regulatory rules for a new financial instrument and harmoniously fit them into the existing principles of the economy. This process was launched in 2020 and resulted in financial licenses for digital asset custody in EU countries such as Germany.
Although the rules vary from country to country, in general, the EU welcomes cryptocurrencies and develops rules that would officially allow assets to be represented in the form of tokens. While the United States still cannot decide on their position on cryptocurrencies, most European countries are in favour of them.
At the moment, there is no uniform regulation for STO in the EU. Instead, security token offerings are subject to various country-specific rules.
- As in other countries, only accredited investors are allowed to participate in private placements (the traditional type of fundraising during asset tokenization) in the EU.
- Up to a certain amount of raised funds during STOs, it is not necessary to register an offering.
- In different countries, this figure is different. As a rule, it is from 5 to 8 million euros.
Also, when choosing the EU as a jurisdiction for conducting STO, it is necessary to consider such a feature of local legislation as the equivalence of capital markets. This rule implies that the limit will be shared if two countries have an equivalent capital market. For example, you can’t raise €5 M in one country and €5 M in another country – the total amount of raised funds during the STO must be €5 M overall in two countries.
The registration threshold applies to the amount raised through STOs in all EU countries. The exact amount is the lowest common denominator of all the countries you are interested in. For example, the registration requirement for Malta is €5 million, while in France, this amount is €8 million. To not register an STO, you must raise no more than 5 million euros in these two countries. In general, €5 M is the most common threshold, so tokenization experts recommend not to exceed it and not advertise STOs in countries with a lower threshold.
In addition, in September 2020, a draft law was proposed to regulate crypto-asset markets. This law, which will also include MiCA (Markets in Crypto-Assets), may be released in 2023 and will be in addition to the existing MiFID II regulation of common financial instruments.
New regulations, such as the German crypto security law, are designed to promote the development of decentralized finance and make the market more reliable and accessible to all.
Top European STO cases
Many businesses across Europe have managed to raise hundreds of millions of dollars during STOs. The STO market evolves and is filled with convincing cases that can serve as an inspiring example and proof of tokenization market efficiency. Some of them are listed below.
The Italian racing and collector’s car manufacturer was looking for more investment options and created an MZZ token offering on a regulated platform. The MZZ Token corresponds to registered securities issued by Mazzanti Automobili SRL. Each token has a value of $1 and entitles investors to a 20% share of the income from the pre-sale of hypercars of this brand. Mazzanti Automobil has $10,000,000 pre-orders, and the profits will cover hypercar production costs.
The STO is active until the end of 2022, and the MZZ Token is under SEC regulation.
Cam.TV is a brand new social platform that offers to exchange helpful content. With STO, the startup offers an innovative economic model that lets content creators get automated income by distributing their business volumes with users using a native coin of the corresponding blockchain.
Thanks to this STO campaign, Cam.TV attracted 2500 investors and raised almost €20 million.
WeInvest Capital Partners’ Premium Real Estate Fund is engaged co-investments in premium-located real estate. The company invests worldwide and has a large portfolio of luxury properties. The fund plans to raise €60 million. This will help WeInvest Capital Partners’ Premium Real Estate Fund develop an attractive product with high returns, low management costs, and interest payments to preferred partners.
The asset tokenization and STO market in Europe allow companies to raise the necessary funds for internal needs quickly. Asset tokenization and token offering make it easier to get the necessary capital than with traditional investments. The STO market in Europe has a legal basis and continues to grow extremely, and for many companies, this is a great opportunity to get funding.
However, there are some peculiarities in the regulation, including the threshold above which registration of the offering is required and the need to consider that the amount of funds raised is considered for the entire EU as a whole and not for a particular country. Thus, if you are going to conduct an STO in the European Union, you may contact a reliable consulting company that will first tell you about all the nuances and help you carry out the entire procedure legally correctly.