The securities have always been a matter of concern for the crypto industry. Therefore, it still goes under several modifications and new regulations. In mid-2018, an announcement came from socio-economic classification (SEC). It stated that since most of the projects under ICO were similar to securities, it must go through the regulations of SEC. And here came another alternative of ICO, that is known as Security Token Offering (STO). Let’s discuss the reasons why STOs will replace ICOs.
Since STOs obeys the rules and regulations of the SEC, it provides a kind of trust for the projects under STOs. This was missing in case of ICO oriented projects. Hence, in the future, more and more plans would tend to gain instant credibility after getting approved by SEC, a sign that STO is going to replace ICO.
The main idea of ICO was to generate utility token. However, there was a problem of ownership with ICO. Since no real-world asset was involved in the case of ICOs, the investor doesn’t own anything. In the case of STOs, the investor will have own asset that would be represented by the security token.
More the ease of programming more is the flexibility. ICO projects don’t allow the developers to program. Hence, modifications were difficult to be implemented. In the case of STOs, they are programmable. This implies that one can apply certain rules within the security token to be applied. This is a major advantage of STOs.
Current ICO securities only work for work hours usually 9-5 and only for weekdays. However, in the field of crypto, the security may be required and any transaction may happen at any point in time. STOs have full liquidity and operate for 24*7. This feature may lead STO to replace ICO in the future.
We all are aware that transaction in blockchain technology knows no boundary and no nation. However, with the present ICOs, one has to pay a huge amount of fee for launching an initial public offering in the global market. This is not the case of the alternative STO, where this fee is considerably low.
Since the projects of STO are approved by the regulations and norms of the SEC, it makes them completely traceable. This brings transparency in the market as anyone can watch who hold the coin in the market and for how much longer time interval. It can trace a coin throughout a complete year. This is really amazing.
Since the rules and regulations of a market vary from country to country, state to state; it was difficult to impose different securities measure with ICOs. However, since STO is programmable, it implies that one can modify the compliance easily with a change in the program of securities as per the location. This enables the embedded compliance in STOs.
With the guidance of SEC regulations, the chances of scams and Ponzi schemes are relatively low in STOs as compared to ICOs. ICOs hasn’t this feature and has faced a lot of such scams in its history. Wil less prone to these scams, higher is the chances of replacement of ICO by STO.
There are still some countries who have a negative view of crypto space. However, with the introduction of STOs, some of such countries are welcoming this market for future activity in their country. Recently, Hongkong welcomed crypto along with STOs. This is a good sign for both crypto spaces and STOs.
The process of generating utility tokens in ICOs was very costly. However, in the case of STOs, the process of generation of security tokens are very cheaper and easy to issue. This is also one of the reasons for increasing popularity and use of STOs as compare to ICOs.
There are numerous platforms that create and distribute security tokens. These platforms are also responsible for having compliant, regulated smart contracts for the issue of the security tokens. More is the number of such platforms, easier it would be for the investors.
Unlike ICOs where the utility tokens were entitled to their own project’s protocol technology, security tokens are constructed on existing blockchain protocols. While most of the security tokens are constructed on Ethereum technology, there are a lot number of such protocols that are entering the space.
Most of the analyst believe that STOs are an advanced version of ICOs. While they cover almost every market feature of ICOs, in addition, they also have the facility of more securities. If they are providing existing as well as more securities feature, why wouldn’t the world go for it?
While the securities have been always the major concern in crypto space, the introduction of STOs in this market would surely be a huge relief. STOs projects that are secured by SEC regulations, hence they are more compatible with crypto space as compare to their competitor ICOs.
It is not the situation that STOs are yet to come in the market. They are already present in the market. Huge countries like Russia have already replaced their ICOs project with STOs. One can easily track the progress of STOs as in January 2018, there were only 5 STOs conducting the main sale and by October 2018, it raised by more than 400% to 22.
The above points indicate that Security token offerings are going to replace Initial coin offerings in the near future.