Liquidity is one of the golden promises of security tokens as a new asset class. Unfortunately, until now, the security tokens have shown an almost concerning lack of liquidity. Most people tend to see liquidity as a factor related to the maturity of the market and assume that it will develop organically in the security token space. The truth is a bit more complex. Liquidity is in fact a sign of maturity in financial asset classes but only those with the right infrastructure. Many mature financial asset classes remain highly illiquid as they don’t possess the correct building blocks for nurturing organic liquidity. Similarly, other asset classes with the right liquidity framework take years fail to achieve relevant levels of liquidity in its early days. Today, I would like to explore some of the key building blocks that need to in place to enable liquidity in security tokens both from the technical and financial standpoint.
If there is a single principle I want you to take away from this article it would be this: “In financial markets, liquidity is something you build for not something that happens”. In the context of security tokens, the market could remain highly illiquid unless we establish the right infrastructure for the different participants to engage in trade dynamics.