Technology

While cryptocurrencies have generated the lionshare of investment and attention to date, I&m more excited about the potential for another blockchain-based digital asset: security tokens.

Security tokens are defined as &any blockchain-based representation of value that is subject to regulation under security laws.& In other words, they represent ownership in a real-world asset, whether that is equity, debt or even real estate. (They also encompass certain pre-launch utility tokens.)

With $256 trillion of real-world assets in the world, the opportunity for crypto-securities is truly massive, especially with regards to asset classes like real estate and fine art that have historically suffered from limited commerce and liquidity. As I&ve written previously, imagine if real estate was tokenized into security tokens that you could trade as safely and easily as you do stocks. Thatwhere we&re headed.

Therea lot of forward momentum around tokenized securities, so much so that based on their current trajectory, I believe security tokens are going to become a common part of Wall Street parlance in the near future. Investors won&t just be able to buy and sell tokens on mainstream exchanges, however; &crypto-native& companies are also throwing their hats into this ring.

The starter pistol has been fired

The race is on to bring security tokens to the masses

Because Bitcoin and other cryptocurrencies are not classified as securities, itbeen much easier to facilitate trading on a large scale. Security tokens are more complex, requiring not just capabilities around trading, but also issuance and, critically, compliance. (See more of my thoughts on compliance here.) Ita major undertaking, which is why we haven&t seen the Coinbase or Circle of security token trading emerge yet (or seen these companies expand their platforms to address this — more on that later).

Meanwhile, regular exchanges are blazing the trail and moving into providing tokens trading. The founder and chairman of the company that owns the NYSE announced a new venture, Bakkt, that would provide an on-ramp for institutional investors interested in purchasing cryptocurrencies. Last month, the SIX Swiss Exchange — Switzerlandprincipal stock trading exchange — announced plans to build a regulated exchange for tokenized securities. The trading and issuing platform, SIX Digital Exchange, will adhere to the same regulatory standards as the non-digital exchanges and be overseen by Swiss financial regulators.

This announcement confirms a few things:

1. Most assets (stocks, bonds, real estate, etc.) will be tokenized and supported on regulated trading platforms.

2. Incumbents like SIX have a head start due to their size, regulatory licensing and built-in user base. They are likely to use this advantage to defend their position of power.

3. Most investors will never know they are using distributed ledger technology, let alone trading tokenized assets. They will simply buy and sell assets as they always have.

I expect other major financial exchanges to follow SIXlead and onboard crypto trading before long. I can imagine them salivating over the trading fees now, Homer Simpson-style.

Live shot of financial exchanges drooling over crypto trading fees

Crypto companies are revving their engines

The big crypto companies are preparing to enter the security token arena

Stock exchanges won&t have the space to themselves, however. Crypto companies like Polymath and tZERO have already debuted dedicated platforms for security tokens, and all signs indicate announcements from Circle and Coinbase unveiling their own tokenized asset exchanges are not far behind.

Coinbase is much closer to offering security token products after acquiring a FINRA-registered broker-dealer in June, effectively backward-somersaulting its way into a state of regulatory compliance. President and COO Asiff Hirji all but confirmed crypto-securities are in the companyroadmap, saying that Coinbase &can envision a world where we may even work with regulators to tokenize existing types of securities.&

Circle is also laser-focused on security tokens. Circle CEO and co-founder Jeremy Allaire explained the companyacquisition of crypto exchange Poloniex and launch of app Circle Invest in terms of the &tokenization of everything.& In addition, it is pursuing registration as a broker-dealer with the SEC to facilitate token trading — it could also attempt to take the same backdoor acquisition approach as Coinbase.

If therea reason Circle and Coinbase haven&t moved into security token services even more rapidly, itthat there simply aren&t that many security tokens yet. Much of this is due to the lack of compliance and issuance platforms, keeping high-quality securities on legacy systems with which issuers feel more comfortable. As projects like Harbor ramp up more, this comfort gap will grow smaller and smaller, driving the big crypto players deeper into security token services.

The old guard versus the new wave

Expect a battle between traditional and crypto exchanges

This showdown between traditional finance incumbents and crypto giants will be worth watching. One is incentivized to preserve the status quo, while the other is looking to create a new, more global financial system.

The Swiss SIX Exchanges of the world enjoy some distinct advantages over the likes of Coinbase — they have decades of traditional financial operating experience, deep relationships throughout the industry and a head start on regulatory compliance. Those advantages probably mean that such incumbents will probably be the first to make infrastructural and logistical upgrades to their systems using security tokens. The first time you interact with a security token, it is likely to be through the Nasdaq.

Having said that, incumbents& greatest disadvantage will be transporting an old-finance-world mentality to these innovations. Coinbase, Circle, Polymath, Robinhood and other newer players are better suited to harnessing the stepchange elements of security tokens — particularly asset interoperability and imaginative security design.

University of Oregon professor Stephen McKeon, an authority on security tokens, told me that &the potential for programmable securities to enable the expression of new investment types is the most exciting feature.& Harbor CEO Josh Stein explained why private securities in particular will be transformed: &by automating compliance, issuers can allow their investors to trade to the limit of their liquidity across multiple exchanges. Now imagine a world where buyers and sellers around the world can trade 24/7/365 with near instantaneous settlement and no counterparty risk — that is something only possible through blockchain.&

Those hypergrowth startups are going to experiment with these new paradigms in ways that older firms won&t think of. You can see evidence of this forward thinking in Circleefforts to build a payment network that allows Venmo users to send value to Alipay users — exactly embracing interoperability, if not in an asset sense.

The race is on

As PolymathTrevor Koverko and Anthony &Pomp& Pompliano have been saying for the past year, the financial services world is moving toward security tokens. As the crypto economy matures, we&re inching closer to a new era of real-world assets being securitized on the blockchain in a regulatory compliant manner.

The challenge for both traditional and crypto exchanges will be to educate investors about this new way to buy and sell investments while powering these securities transactions via a smooth, seamless experience. Ultimately, security tokens lay the groundwork for granting investors their biggest wish — the ability to trade equity, debt, real estate and digital assets all on the same platform.

Pandora announced three new capabilities for advertisers today — the ability to dynamically assemble different audio ads for different listeners, the ability to sequentially target ads so that they fit together into a larger strategy and shorter ad formats that range from four to 10 seconds in length.

Claire Fanning, Pandoravice president of ad strategy, told me via email that the company is announcing these capabilities at the same time because &they work together in really powerful ways.&

For example, she also sent along campaign mock-ups that showed how ads could be tailored to include both the day of the week and a call-to-action tied to the listenerlocation, and how the ads could be also specifically sequenced so that listeners start with the longer message, then hear shorter and shorter spots.

&We believe that an advertiserpersonalized audio strategy will not only be unique to that advertiser, but also unique to each campaign,& Fanning said. &In some cases, leveraging one capability may be best (short form, dynamic, sequential) — and in other cases, leveraging 2 or 3 may be most powerful. Itreally dependent on the advertisercreative strategy and which solution, or solutions, will support that strategy best.&

While Pandora launched its own on-demand music service last year, advertising remains the main way the company monetizes its 72.3 million active listeners. Itsays itthe first company to make these features available in a large-scale way, and italready been testing them with 20 advertisers, enlistingVeritonic to measure the results. For one thing, it says that Layfound short-form audio had a 56 percent higher return on ad spend.

As the company looks to deliver more personalized advertising, it may face more questions about privacy, but Fanning said Pandora doesn&t collect any personally identifiable information about users except for their email addresses.

&We use industry-standard security practices to protect our data and have developed internal tools and processes to ensure compliance with our privacy commitment,& Fanning added. &We&ll continue to fortify this by tightening certain contractual language, auditing existing 3rd-party data partners, and evaluating future partnerships with enhanced rigor.&

Facebook users are complaining the company has removed the cross-posted tweets they had published to their profiles as Facebook updates. The posts& removal took place following the recent API change that preventedTwitter users from continuing to automatically publish their tweets to Facebook. According to the affected parties, both the Facebook posts themselves, as well as the conversation around those posts that had taken place directly on Facebook, are now gone. Reached for comment, Facebook says itaware of the issue and is looking into it.

TechCrunch was alerted to the problem by a reader, Lawrence Miller, who couldn&t find any information about the issue in FacebookHelp Center. We&ve since confirmed the issue ourselves with several affected parties and confirmed it with Facebook.

Given the real-time nature of social media — and how difficult it is to pull up old posts — itpossible that many of the impacted Facebook users have yet to realize their old posts have been removed.

In fact, we only found a handful of public complaints about the deletions, so far.

For example:

Above: selected complaints from Twitter about the data loss

Above: a comment on TechCrunch following our post on the API changes

Some of those who were impacted were very light Facebook users and had heavily relied on the cross-posting to keep their Facebook accounts active. As a result of the mass removals, their Facebook profiles are now fairly empty.

TechCrunch editor Matthew Panzarino is one of those here who was impacted. He points out that the ability to share tweets to Facebook was a useful way to reach people who weren&t on Twitter in order to continue a discussion with a different audience.

&I&ve had tweet cross-posting turned on for years, from the early days of it even existing. This just removed thousands of posts from my Facebook silently, with no warning,& Matthew told me. &Even though the posts didn&t originate on Facebook, I often had ongoing conversations about the posts once my Facebook friends (and audience) saw them. Many of them would never see them on Twitter either because they don&t follow me or they don&t use it,& he said.

&Itwild to have all of that context just vanish,& he added.

As you may recall, Facebook earlier this month made a change to its API platform to prevent third-party apps from publishing posts to Facebook as the logged-in user. The change was a part of Facebooklarger overhaul and lockdown of its API platform in the wake of theCambridge Analytica scandal,where as manyas 87 million Facebook usershad their data improperly harvested and shared.

Since then, Facebook has been trying to plug up the holes in its platform to prevent further data misuse. One of the changes it made was to stop third-parties from being able to post to Facebook as the logged-in user.

For existing apps, like Twitter, that permission was revoked on August 1, 2018.

Above: Twittercross-posting feature, on the day it was disabled by the Facebook API change

Before the API changes, Twitter users were able to visit the &Apps& section from Twitter on the web, then authenticate with Facebook to have their tweets cross-posted to Facebooksocial network. Once enabled, the tweets would appear on the userpage as a Facebook post they had published, and their friends could then like and comment on the post as any other.

In theory, the API changes should only have prevented Twitter users from continuing to cross-post their tweets to Facebook automatically. It shouldn&t have also deleted the existing posts from Facebook users& profiles and business users& Facebook Pages.

This is a breach of trust from a company thatin the process of trying to repair a broken trust with its users across a number of fronts, including data misuse. Regardless of whatever new policy is in effect around apps and how they can post to Facebook, no one would have ever expected that Facebook would actually remove their old posts without warning.

We&re hoping that the problem is a bug that Facebook can resolve, and not something that will result in permanent data loss.

Facebook tells us while it doesn&t have further information about the problem at this time, it should have more to share tonight or tomorrow about whatbeing done.