As a public utility, infrastructure is the core foundation on which our society operates. The water we use to grow our food is the same water that keeps our factories running. The roads used to deliver those foods are the roads we use to contribute to the workforce. While infrastructure is often placed on the back burner of our minds, it remains at the forefront of everything we do, hidden in plain sight.
Current Issues with the Political Landscape
While our problems with infrastructure are abundant, the political sentiments that come with the development and maintenance of said infrastructure seem to only exacerbate the problem more than anything else. A common issue most taxpayers face is they feel their financial contributions to society (via taxes) are often sullied away with financial mismanagement and conflicting priorities.
While campaign finance laws within Ontario and Canada as a whole may fare better than our neighbors to the South, we have not eliminated political conflicts of interest entirely. Perhaps we are all too familiar with the cyclical scenario of politicians making grand promises for a better future, only to pull an 11th-hour change at the request of their corporate donors.
The reality is that constituents’ voices are not being heard. They pay into a system expecting it to work for them, only to be met with crumbling infrastructure and higher future taxes. Perhaps then, the time has come to no longer place the entirety of our faith into the hands of a few elected officials.Â
Leveraging the STO
If we asked you for the return on investment (ROI) on the taxes you pay, what would that number be? Chances are you won’t be able to give an exact percentage, and that’s ok. Taxes are dynamic, and the true ROI will vary significantly between individuals based on a multitude of different use factors. What we can agree on is that much of the ROI from the taxes we pay are non-monetary. You can’t put a price on a healthy, happy, and educated society. Well, maybe you can, but that is beyond the scope of this article.
Considering that, on average, around 25% of our income is taken as one form of tax or another, it is a bit concerning that we cannot easily quantify the net return on that tax paid. But what if we could, to some degree?
Let’s go back to infrastructure. Consider the GTA West Corridor (Highway 413), the proposed 52km highway spanning over the western Greater Toronto Area. While the project currently has mixed sentiment from the public, the primary deterrent is the project’s cost: upwards of $5 Billion CAD.
Under a normal public financing model, bonds would be issued to fund the project and paid back with taxpayer money. Generally speaking, infrastructure projects often go significantly over budget, leaving the taxpayers to foot the bill in the form of increased local taxes.
Security Token Offerings (STOs) would allow for the private financing of such a project with funds from the general public as an investment vehicle. Unlike traditional cryptocurrency, an STO is backed by the underlying asset used to finance the digital asset, in this case, Highway 413.
Under such a model, security tokens would be issued to interested constituents as an offer of equity (or debt ownership) on the project. These tokens would then generate returns through equity growth and dividends or interest payments on the loan, depending on the financing model used.
Visualizing the STO
Suppose the Ontario government opted to finance the highway project using an STO. Through the equity model, the government could issue 100 million tokens priced at $100 each, raising $10 Billion for the project. The initial offering is enough to cover the initial costs plus any potential overages. Once the project starts generating revenue in the form of tolls and other fees, the revenue would go directly to those constituents and stakeholders who financed the project.
Such a model allows for the immediate disbursement of funds, enabling city officials to begin construction right away. The relative ease of financing with STOs means less overhead and red tape found within traditional financing methods. Investors are free to buy from or sell their tokens to other investors, allowing for greater liquidity within a fixed asset.
The Bottom Line
While STOs are still a relatively new concept, one thing is for certain: they fix the liquidity problem. Investors are often deterred from financing infrastructure because of the illiquid nature of such assets. Tokenization effectively turns these assets into liquid securities, offering greater incentives for investors and more control for constituents.
