The race is on to be the NASDAQ of blockchain. As the market for tokenized securities begins to take shape, U.S. trading platforms are seeking first mover advantage.

The winner hopes to become the primary destination for investors and traders to buy and sell tokens for equity, debt, and other security instruments. Evangelists see potential for tokenization to take a big fractional bite out of the illiquid $7.7 trillion market for alternative assets, which includes real estate, private equity, venture capital and hedge funds.

Security tokens have a bright future because they solve a key problem facing alternative assets, these people say. Unlike public equities, private securities do not have a well-defined and structured clearing and settlement process. There is no central securities depository. There is no coordinated clearinghouse. “It’s a very raw space where a lot gets done through the broker-dealer network and through financial advisors,” says Juan Hernandez, chief executive officer of OpenFinance, a security token trading platform based in Chicago.

The world of alternative assets will come to appreciate and embrace blockchain for trading its illiquid securities “not because of the hype or frenzy or the excitement around blockchain,” says Hernandez, “but, simply put, because it is just a more efficient way to conduct a private placement and a more efficient way to manage the shareholder relationship after the issuance.”

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Hernandez sees OpenFinance as a neutral facilitator that does not take a position in the trades. The exchange has a central limit order book and uses a price/time algorithm in its matching engine in much the same way as NASDAQ matches buyers and sellers and executes trades.

But despite the grand vision for an active market trading private securities, current trading volumes remain quite low and uninspiring. In such a landscape of scarce trading activity, each of the contenders is looking to stake out a patch of territory, however small or tentative it might be.

OpenFinance faces competitors that think they have the edge. Among them are Templum Markets, SharesPost, and Overstock’s tZero. Even so, OpenFinance claims its achievements place them a few steps ahead. “We were the first U.S.-registered platform to begin trading live on November 28, 2018, and we remain the only live U.S. platform for U.S. and non-U.S. investors, operating around the clock every day of the year.”

Other platforms stake out their own bragging rights. For example, Templum did the first security token transaction on a regulated platform in January 2018, ten months earlier than OpenFinance, according to chief executive officer Vincent Molinari.

It is difficult to assess the claims of trading platform companies. Public information on what tokens are trading on any of the platforms is scarce. Only a few scraps of information have been made public.

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“We started out trading Blockchain Capital, a venture capital firm out of San Francisco,” Hernandez recalls. BCAP is the symbol for the Blockchain Capital III Digital Liquid Venture Fund, which raised $10 million in March 2017. Recently, BCAP has traded around $3 a share, triple the initial $1 offering price, he says. SPiCE Venture Capital‘s token was the first security to trade on OpenFinance’s centralized regulated security token exchange platform. It raised $15 million from a token issue in March 2018.

Some players in this space do not believe that any of the contending security token trading platforms will emerge as the unrivaled leader. “We don’t believe it is a winner-take-all space. There will be room for many exchanges to be successful,” says Josh Stein, chief executive officer at Harbor, a San Francisco firm that has built a platform for compliant security token issues.

OpenFinance partners with companies like Harbor, TokenSoft and Securitize, to assist with the initial token offerings. Once those deals are closed, the tokens can be listed for trading.

OpenFinance has recently added four more security token listings, two for venture capital funds and two for private equity funds. The exchange cannot release publicly the names until the end of a 12-month holding period when trading is open only to accredited investors.

While Hernandez is confident there will be a number of new token listings for their platform over the next 18 months, there have been disappointments. On April 11, OpenFinance learned that an important pipeline deal from Harbor was cancelled. If the offering had been successful, it would have marked a new milestone as the first tokenized REIT (real estate investment trust).

Harbor announced the $20 million deal last November to tokenize part of The Hub at Columbia, a private high-rise apartment building that houses students from the University of South Carolina. Harbor had partnered with Convexity Partners, a Chicago real estate investment firm. Convexity, however, terminated the deal over a dispute with the existing mortgage lender.

Hernandez sees the need for the SEC and FINRA to provide more clarity and guidance around security tokens to potential issuers and investors in alternative assets. For example, matters of custody around digital securities have not yet been clarified. When new guidance is provided, he says, it will lead to more issues of security tokens and, thus, more listings.

Molinari at Templum sees this market evolving as the dollar amount of deals rises from an initial modest beginning, such as Templum’s own $18 million tokenization of a small equity stake in the St. Regis in Aspen, Colorado. “That deal showed that a marquee real estate property could be funded. It was a benchmark,” Molinari says.

Templum expects that the next benchmark for security tokens is likely to be a larger real estate property, one sizable enough to attract major institutional investors. Success in tokenizing a large multimillion dollar deal would “dramatically increase the velocity of token issues” to follow, Molinari says.

“It’s a bit of a chicken and egg thing,” says Hernandez, noting that a more robust secondary trading market also increases the appeal of initial security token offerings. Investors feel better about investing, he says, because they know the tokens can be sold at a later date without a big loss of value.