2017-2020, the security token wave and its disillusionment

In the autumn of 2018, a Colorado luxury hotel made the headlines of the specialist press. The St. Regis Aspen, a luxury hotel nestled at the foot of the slopes, saw a fraction of its capital, just under a fifth, sold in the form of tokens recorded on Ethereum. The deal raised about eighteen million dollars. For the first time, a prestigious real estate asset known to the general public entered the blockchain through the front door, with a prospectus, lawyers and a regulated platform. The sponsors of the deal spoke of a revolution in real estate investment. The moment seemed to have come.

It had not, quite. The period that opened after the ICO bubble is that of security tokens, tokens openly acknowledged as securities. It produced decisive innovations, lasting legal frameworks and companies that still dominate the market. It also produced a disappointment as large as the hopes it had raised. Understanding this disillusionment is essential for anyone who wants to build a business in RWA, because not all of its causes have disappeared.

The compliance bet

The SEC’s report on The DAO, in July 2017, had laid down a clear principle. A token that allows investors to contribute funds to a common enterprise in the expectation of profits derived from the efforts of others is a security, whatever name it is given. American lawyers recognise here the Howey test, from a 1946 Supreme Court ruling concerning shares in Florida orange groves. The technology was changing, the law stayed the same.