Security Token Offerings: STOs Replacing ICOs?

The term initial coin offerings (ICOs) have become a synonym with mostly unregulated cryptocurrency market. As a result, there is skepticism that it is not a regulated one thus posing increasing risks. On the other hand, security tokens offerings (STOs) are a regulated one and could possibly be the next big thing to be used as a tool to raise funds from the public. The startups have always looked for funding from different segments such as angel investors, Crowdfunding and venture capitalists for their businesses.


New Method

In the last three years, a fresh method of funding has come into force, and different startups have even used a whitepaper in certain cases to raise funds. This was called as an ICO. The last three-year period has seen the ICO market generating $13 billion of money. Significantly, half of them came in the current year alone after the cryptocurrency market has hit dizzy heights in December 2017 when nearly all the coins have touched their life-time highs.

However, even the amount raised in 2018 is only a small piece for digital coins if the conventional stock markets are taken into consideration. At the same time, the ICO market is growing at a rapid pace since the blockchain-based startup could easily raise money simply by demonstrating a white paper before investors. These promoters supply tokens instead of shares to investors as they are launched from platforms such as EOS, NEO and Ethereum. The primary gains of using the distributed ledger technology (DLT) platform is the potential of including smart contract to execute terms.


Exchange for Products

The ICOs issuing tokens meant that investor will not get any equity or another form of asset. On the other hand, any digital coins or tokens issued would be exchanged for any future products or services from the company. There are some countries that are identified as preferred destinations for launching ICOs due to the favorable atmosphere. They are mostly either dApp or utility tokens only.

Despite significant fundraising exercising from the ICOs in 2018, the overall cryptocurrency market is in doldrums in the absence of clarity on regulations and treatment of it. The weak and continuous drop in sentiments on the virtual assets has only led to massive losses to investors. Significantly, 99 percent of the ICOs witnessed a loss after their highs.


STOs Backed By Asset

As investors started realizing the gamble of investing in ICOs, a fresh form of fundraising through STO has emerged for startups. There are some similarities with that of a conventional business launching an initial public offering (ICO). STOs, which is normally approved by the Securities and Exchange Commission (SEC), is backed by assets and legally binding investment contracts. As a result, it offers investors access to the company’s share of voice in the decision-making process.

The primary difference between the ICO and STOs are that while the former has failed to provide any rights to investors, the latter provides enough rights that are much similar to IPOs. In short, the misgivings that exist in ICOs will be removed from the STOs. On top of this, it removes any scam projects since it needed to comply with the regulations. Because of the surveillance, STOs are better served for investors compared to ICOs.



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