Written by Ross Shemeliak, COO at 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 asset tokenization market size was USD 18.1 billion in Q4 2020, while the total digital asset market cap was around USD 350 billion.
At the moment, one of the most suitable regions for holding a security token offering is Europe. Local authorities are seeking to build a favorable policy regarding the STO regulation. Many popular tokenization-related projects also come from Europe. Stobox, which 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
Since its emergence, the market of tokenized assets has shown significant exponential growth according to security token market reports. Given the innovativeness of the market, experts believe that the trend of such growth will continue. For instance, 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, its estimated growth rate will be roughly 81% each year from 2021 to 2026. Compared to 2020, the security tokens market cap in 2021 increased by 500% and trading volume by 1000%. Between April 2021 and April 2022, the security tokens market cap increased by 2650% and trading volume by 386%, according to Stobox analytics. In May 2022, the total market cap of traded security tokens surpassed $19 billion, a 20x growth in a year.
This trend is explained by the growing interest in tokenized assets, which offer high liquidity and a way to save and increase funds for investors of any scale.
Regulation of STOs in Europe
At the moment, there is no uniform regulation for STOs in the EU. Instead, security token offerings are subject to various country-specific rules.
Key points:
- Accredited investors are allowed to participate in private placements (the traditional type of fundraising during asset tokenization) in the EU without any limitations.
- There is no need to register a prospectus with the competent authorities if the offering amount is below a certain threshold. This figure varies from country to country. As a rule, it is from €5 million to €8 million.
Also, when choosing the EU as a jurisdiction for conducting an 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 million in one country and €5 million in another country – the total amount of raised funds during the STO must be €5 million overall in two countries.
The prospectus 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 a prospectus, you must raise no more than €5 million in these two countries. In general, €5 million is the most common threshold, so smaller offerings often choose a €5 million limit to reduce the red tape and time to market.
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
The STO market evolves and is filled with convincing cases that can serve as inspiring examples and proof of tokenization market efficiency. Some of them are listed below.
Mazzanti Automobili S.R.L.
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 million 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.
Social network STO — Cam.TV
Cam.TV is a brand new social platform that offers to exchange helpful content. With the 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 in Luxembourg
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.
Summary
The asset tokenization and STO market hold the promise of greater liquidity, attractiveness to investors, and access to capital. In 2019, there were already 64 successful STOs, and though there are no statistics for 2020-2022, we can assume that this number has doubled at least. And while there are legal barriers and inertia of market participants, the European market has evolved tremendously over the past two years, and we are closer to the realization of this promise, as demonstrated by successful cases and impressive growth rates. 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, and for many companies, this is a great opportunity to get funding.
However, there are some peculiarities in the regulation, including the threshold mentioned 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 correct.
Photo by Jan Huber on Unsplash
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