Tokenization market in Europe: Cases and Predicted Growth
Although it’s not very visible for the unaided sight yet, the industry of tokenization is currently at the stage of exponential growth: it can be witnessed thanks to overall growing market’s metrics, a variety of influential organizations creating their own tokenization solutions, and the 9-digit valuations that tokenization startups get more and more often. Currently, the most prosperous ground for conducting an STO is in Europe: the largest amount of various cases, as well as the progress authorities are trying to make in the legislative field, makes the EU a promising jurisdiction to conduct security token offerings. Taking this knowledge into account, it makes sense to analyze the STO market in Europe, look at the bright cases, and summarize the results.
European STO market size outlook
The European security token market is currently only reaching its coming of age; still, like a valid teenager, it’s evolving quite fast. Just in the course of 3 years, starting with the first reported security tokens in Europe in 2017, the number of such assets grew a hundred times by 2020. According to PlutoNeo and Tangany’s research, the market will continue to rise over the following five years, reaching a total market volume of more than €918 billion in Europe alone by 2026, including fiat-backed stablecoins. 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 driven by growing interest in digital assets, particularly cryptocurrencies like Bitcoin and tokenized assets: they provide high liquidity and cheap maintenance costs.
Legislative point of view
Since the advent of the ICOs trend and its transformation into the STO awe, European and worldwide regulators have been adopting this novice kind of financial instrument into existing regulations, as well as generally trying to adapt it to the existing legislative canvas. Having started in 2020, the process later introduced financial licenses for digital asset custody in Germany and other EU member states.
Officials view this as a fertile ground for innovation and the emergence of the next-day digital goliaths. As a result, countries such as Germany are drafting laws that would allow assets to be represented as tokens. While the United States is still figuring out where the country wants to go, European countries mostly led the trend. Close observation of security token offerings in Europe inspired Asian governments to take quite varied approaches to this issue as well.
Current regulations in Europe
European Union level doesn’t provide a specific regulation on security token offerings at the moment. Nevertheless, STOs may be subject to various current EU securities rules and regulations.
Like many other jurisdictions, the European Union only allows accredited investors to invest in private placements, a common type of fundraising used in the tokenization realm. Until a certain sum isn’t reached, many European countries, including the European Union level, do not mandate registering the offering. Depending on a country engaged in fundraising, an exact figure can be different, but most frequently, it’s 5 or 8 million. A notable rule implemented here is the equivalence of capital markets. If two countries have an equivalent capital market, it isn’t possible to raise $8 million from one country and do the same with the other: this sum may only be taken from 2 countries at once.
Capital markets in all EU member states are regarded as equal. The registration threshold is applied to the total amount of money raised across the European Union. The threshold’s exact value is the lowest common denominator of all the regions you’re interested in. In Malta, for example, the registration requirement is €5 million, whereas, in France, it is €8 million. To avoid registering, you must raise less than €5 million if you want to target those two countries. Because €5 million is the most common barrier, we normally advise our customers not to expand it and remove countries with lower thresholds from active advertising.
A draft proposal for a regulation on crypto asset markets to encourage the use of Distributed Ledger Technology in financial services was issued in September 2020, following a European Commission consultation on crypto assets that ended in March 2020. This regulation, which will include MiCA (Markets in Crypto-Assets), will be released by 2023 at the latest and will serve as a complement to the existing MiFID II regulation of traditional financial products and activities. Of course, the new legislation like the German crypto security law serves as one more factor accelerating the trend of decentralized finance. Indeed, the goal of establishing a unified digital asset market is undeniably praiseworthy.
European STO most compelling cases
Earlier on our blog, we covered the most successful STO cases completed by different businesses, which managed to raise hundreds of millions of dollars. The most notable about the given cases is that two are European-based among the three described. Since the time we wrote the previous article, the STO market has had time to harvest even more convincing cases that can serve as an inspiring example and proof of tokenization market efficiency.
Mazzanti Automobili S.R.L.
Mazzanti Automobili is an Italian racing and collector’s car manufacturer. The company’s goal is to open one more investment source for its business, making MZZ tokens offering with the help of a regulated platform. The MZZ Token represents registered securities issued by Mazzanti Automobili Srl through this sale; it has a value of $1 and represents a 20% share of the revenues from the pre-sale of Mazzanti hypercars. Mazzanti Automobili has $10,000,000 pre-orders, and the profits will be used to fulfill the customers’ purchases.
The campaign is officially active and will last until the end of the year, and the MZZ Token is SEC-regulated.
Consulting for Security Token Offerings (STO)
We offer advisory, legal expertise and software solution to help successfully execute a security token offering.
Social network STO — Cam.TV
Cam.TV is a knowledge-sharing social platform based on exchanging helpful content. With the aid of the current offering, the company offers a new economic model that lets content creators obtain a consistent and automated income by distributing all of their business volumes with their users via a native coin of the engaged blockchain.
Thanks to conducting an STO campaign, Cam.TV obtained 2500 investors and has raised almost €20 million so far.
Premium Real Estate Fund tokenization in Luxembourg
WeInvest Capital Partners’ Premium Real Estate Fund is a reserved alternative fund that specializes in co-investing directly in various real estate projects with a premium location strategy. The company offers round-the-world investment prospects in a diversified portfolio of premium real estate projects. The fund is looking to raise €60 million.
Conducting an STO will help WeInvest Capital Partners develop a highly appealing product with low management fees, high returns, and great carried interest distribution to limited partners.