Earlier this month, Document Security Systems, Inc. (NYSE:DSS) took actions to prime the Asset Tokenization market by creating a joint venture to create a digital securities exchange.
Asset Tokenization is a modern technique that uses Smart Contracts (blockchain-based programmable contracts which automatically execute all or parts of an agreement upon specific conditions being met) to convert physical assets into digital assets.
Tokenization helps to ensure greater liquidity, better price discovery and the fractional ownership of previously illiquid, high-priced assets.
The Asset Tokenization market is projected to reach $24 trillion by 2027, based on a survey from the World Economic Forum that anticipates 10% of the world’s GDP will be stored and transacted with the help of blockchain technology by 2025–27.
The exchange will initially launch in the US and then with its international ties may venture out to other countries as appropriate. We are enthusiastic about this venture given the players as well as the ability of DSS to prime the pump but putting its own assets—such as its REITs— into the system creating both liquidity for its assets, as well as reference examples to future customers for its exchange. DSS’s partners in the joint venture are Coinstreet Partners, a global digital investment banking group, and GSX Group, a global digital exchange platform provider for the issuance, trading, and settlement of tokenized securities using its proprietary blockchain solution.
The US is its first target and the first step is to get a license here and FINRA registration as an alternative trading system (ATS). DSS will provide the required cash, GSX Group is providing its platform, and Coinstreet will structure products and market the exchange to customers. This joint venture will not be the first player in this market however. There are about six competitors in the US already including tZero and openfinance, all with minimal traction. DSS will own 60% of the joint venture and has committed $1 million in start up funds, which is believes could get it through to revenues, which should take 18-24 months. Phase one is creation of an app that could take 6-9 months. Then the system implementation and testing could take another 6-9 months, so we expect revenues in 2022.
The venture plans to tackle verticles one at a time starting with OTC traded companies to give them an alternative way to trade raise money. Then EFTs or REITS may be next followed by funds. First it will serve the US market but could easily be connected with GSX’s other exchanges in Malaysia, Gibraltar, and France, as well as expanded into territories with which DSS has inroads such as Singapore.
The platform can also be used and marketed to DSS’s current customers for secured coupon printing. DSS prints coupons for 50% of the consumer packaged goods industry including Pepsi, Hersey, Kellogg’s, and Pfizer. High value coupons (typically over $1) are printed by DSS that cannot be copied by a copier and these could be converted to digital formats.
On Feb. 25, 2021, DSS announced the expansion of its DSS Securities business, which includes this joint venture, through an equity interest in WestPark Capital and an investment in BMI Capital International. DSS executed two separate transactions: it signed a binding note and stock exchange letter of intent to own 7.5% of the issued and outstanding shares of WestPark, and acquired 24.9% of BMI through a purchase agreement. WestPark is a full-service global investment bank and brokerage firm with experience in blockchain. BMI is a private investment bank specializing in corporate finance service for advice and raising capital in the US, Hong Kong, Singapore, Taiwan, Japan, Canada, and Australia. These two firms will help DSS and the joint venture develop a secondary market in securities tokens. This market will be an alternative to current public markets as well as the $6.5 trillion private company market.
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