2017 was a super busy year for ICOs (Initial Coin Offering). Various startups, companies and sadly, shady fundraisers managed to collect around $5.6 billion. However, only 48% of them were successful. Together with big money, it attracted the attention of institutions and government. Hundreds of ICOs were unregulated and weren’t clear enough. It’s naive to believe that authorities will stay away without taking any actions against this financial madness.
What Is Security Tokens Offering?
But before going deeper, let us explain what is Security Tokens Offering (STO). We bet you already know what ICO is. Different from ICO where the token is only a store of value without any backing up, STO gives a part of a company, voting right or something tangible. The most important to mention, STO must comply legal requirements for securities. While utility tokens were aimed to not be seen as an investment. And, of course, that allowed to avoid regulators. Likewise allowing scams to thrive.
Being regulated and at the same time more transparent, STOs are expected to be the next big thing. Investors buying token get not the coin only, but the tangible part of a company (a part of the profit, real estate, or even a precious metal) as well. A lot of experts state that STO reminds IPO more due to the same financial liability.
Also, that solves one big problem of ICOs – scalability. When the funds end, there is no additional way to attract new money, unless starting a new campaign and sell more tokens. After all, it brings, even more, instability and mistrust. STOs, happily, go with a totally different situation since it meets attributes of IPO.
On the other hand, STO goes away from the main idea of cryptocurrencies – decentralization. Corresponding to regulations and requirements of authorities, everything must comply with the requirements of securities. Some pure cryptocurrency enthusiasts say that STO cannot be named as a cryptocurrency, rather should be called crypto assets.
Should We Be Afraid Of Regulations?
As we mentioned it before, many do not like the idea of authorities involved in cryptocurrencies market. I understand their concerns and can agree with some of the positions. At the same time, we should accept the position of government and regulators. People who lose their money by being scammed want justice and active actions from authorities. The same as when you get robbed in the street – you call the police.
It’s natural that these powers must act and things like that cannot be ignored. Someone must take the responsibility. If the government takes it, be sure that they do the same with responding. If we all want to have a clear, reliable and working environment, we have to find a compromise with all parties.
In my personal opinion, these regulations don’t mean that we lose control of our funds and freedom how we manage them. It affects issuers of these tokens more than a single user. At the same time, we get more transparency in the whole process. The cases of pump and dump may be curbed what makes it much more friendly for a newbie investor.
Additionally, investors know what they buy tokens from. That, we believe, helps to minimize various risks. One of them, which we saw a lot during the peak of ICOs – scamming. Thousands of investors have lost huge amounts of money when issuers of tokens simply disappear with all invested cryptocurrency.
In Conclusion – Is STO Good?
We all can agree that a new and more clear fundraising method should bring more positive attention to cryptocurrencies. Not from the institutional investors only, but from the individuals as well. Furthermore, cryptos should remain an attractive way to fund new startups. If the success of ICOs repeats, the next year we may see an explosion in crypto markets with many new coins, but this time, with more trust and confidence. And maybe we will hear better words from reputable names more.
Also, we hope that more big names consider stepping into this game. That would benefit the cryptocurrency market with more funds, investments, and capitalization. Not to mention all the attention it would bring.
However, both ICO and STO still reflect the nature of cryptocurrencies. Those who aren’t familiar with technologies probably will remain skeptical after a doubtful legacy of ICOs. Moreover, it’s still not fully clear how authorities will act within time.
And the last thing worth mentioning, as some people say that STOs are much safer than ICOs, in this context shouldn’t be treated as profitable. Investors may still suffer losses and no one can give any guarantees. On the other hand, isn’t it the same with stocks and other financial instruments?
Disclaimer: This is only the personal opinion of the author. It shouldn’t be treated as any kind of financial advice or pushing to invest. Also, some discrepancy may appear due to changed laws, regulations or position of the authority.