By Vanessa Malone

It seems that in the tech world, each year is deemed the year of (fill in the blank) for some aspect of blockchain technology. 2016 and 2017 were the years of initial coin offerings (ICOs) which took the market by storm and generated an estimated $20 billion in capital. Unfortunately, with the rampant and unregulated growth came scams and many investors were burned in the Wild Wild West of offerings. Because of this, 2017 was also the year regulators began to intervene and shut down what they now stamped as “unregistered securities.”

This forced the industry to pivot and it soon began separating blockchain technology from its initial cryptocurrency use case. 2018 was labeled the year of the security token offering (STO) or what we like to call them, digital securities offerings (DSOs). What it ended up being was the year of excitement surrounding the potential for what the future of issuance, trading, and settlement on the blockchain could be.

2019 was then the year of foundation for digital securities, when some of the excitement finally came to fruition. The infrastructure was being built and companies were treading new paths towards regulated offerings on the blockchain. In July, a major milestone was accomplished: Blockstack and YouNow became the first Reg A+ token offerings to be qualified by the SEC.

Until now, the majority of DSOs were conducted utilizing Rule 506(c) of Regulation D (Reg D). In a Reg D offering only high-net worth individuals, or accredited investors, are able to participate. Reg A+ allows digital securities issuers to broadly market their offerings and accept investments from the general public.

While these two offerings were a success, they also shed light on some of the gaps in infrastructure and regulation. Regarding infrastructure, no liquid secondary trading venue for digital securities currently exists in the U.S. Regarding regulation, the SEC seems to be at a point where they acknowledge the benefits of blockchain, but only if issuers continue to funnel through the existing regulatory framework. This is forcing some issuers to fit the equivalent of utility tokens, which could be compared to frequent flyer miles, into a securities framework. We’re already seeing the consequences of this.

As blockchain securities are still in its infancy, we don’t want to make definitive predictions for 2020, but based on what we saw in 2019, let’s make some educated guesses.

It’s fair to assume that regulatory clarity and asset-custody infrastructure will be prevailing focal points, which as they strengthen, fuel broader adoption. A secondary trading venue for digital securities in the U.S. also needs clear regulatory approval and, once established, should attract quality issuers and drive investors to consider trading blockchain securities.

The Horizon team was asked what they think the blockchain/fintech community should put focus on in 2020 or something that caught their attention this year that we could see more of. Below are some of their thoughts.

Amy Poster, Risk and Regulatory Lead

Despite the overall explosion of blockchain based solutions, widespread adoption continues to lag development. 2020 promises to provide better prospects as capital raising, issuance and trading surrounding more legitimate blockchain securities gains momentum. Continued regulatory uncertainty in the U.S. and worldwide will continue to be a dominating force in the blockchain narrative. SEC enforcement actions against “illegitimate” ICOs may dampen activity and lead to increased issuer compliance in the sector. In the U.S., states like Wyoming are leading legislative efforts for issuers and investors, passing 13 blockchain laws in 2019 with 8 more proposed in 2020.

Colorado, New Mexico , and Nevada are following suit, releasing a flurry of blockchain laws. On the international front, China is poised to become a major player in blockchain technology in the next decade. In October 2019, China’s leader Xi Jinping called for a step up in innovations from Chinese entrepreneurs. This move presents a tremendous trading advantage for China in emerging technology markets.

Andrew Le Gear, Chief Technology Officer

The Istanbul fork only went live on Ethereum a few weeks ago. It will be several months before it’s full effects are felt — but in theory it enables large gains in throughput and capacity for the entire blockchain. This opens a new range of possibilities for blockchain applications that were hindered by capacity constraints up until now. Expect to see new types of blockchain applications emerge in 2020. — And for Horizon in particular, we have the potential to get an immediate trade-capacity boost for the ATSs that Horizon’s technology is and will power!

Lou Taubman, General Counsel

I think the Blockstack Reg A+ offering was the biggest news of the year. It shows that the regulators are open to tokenized securities and blockchain in general. We hope that this means we will see further progress in 2020.

Tim Lovett, Product Manager

What struck me from 2019 was the emergence of positive adoption of blockchain technologies, and general understanding of what the blockchain is and what it can do for society. The media coverage in 2017 and 2018 around the boom in cryptocurrency prices and subsequent crash surely helped take the conversation to the general public, and I personally have been impressed by the level of understanding even within non-technology based organisations around the blockchain. For me the conversations in 2019 around cryptocurrency have become far less frequent, with more individuals and organisations showing interest and understanding of the blockchain and the power of blockchain technologies. I am looking forward to seeing this interest grow in 2020 and how blockchain based services will evolve to further support and mold how we work together in society.

Horizon hopes to fuel the next generation of offerings and exchanges in the U.S. and abroad. We have accomplished many milestones with our digital securities one-stop-shop and are looking forward to what’s to come in 2020.

What are your thoughts on blockchain for 2020?

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