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Security Token Offerings: STOs Replacing ICOs?

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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 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.

#SEC

Spanked by the SEC: Paragon and Airfox ICO

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The Securities and Exchange Commission has ordered penalties of $250,000 each against two Initial Coin Offerings: Paragon and Airfox.

SEC Orders against Paragon and Airfox

The Securities and Exchange Commission has ordered penalties against two Initial Coin Offerings: Paragon and Airfox. According to SEC, both the companies failed to register their ICO tokens as securities under the securities and exchange act 1929. Thus both companies Paragon and Airfox (CarrierEQ) have reached out for settlement with the agency where each of the company have to pay $250,000 to the securities and exchange commission. Notably, all the investors of the initial coin offerings have got an opportunity for a refund.

 

Press Release by SEC

According to the press release published by Securities and Exchange Commission, the agency has imposed a fine of $250,000 against Paragon and Airfox which includes the amounts which will be used to compensate the investors in both Initial Coin Offerings which are being termed as Illegal Offerings. Also, the agency has ordered both the companies to register their respective tokens as securities under the securities exchange act 1934.

 

Steven Peikin, the Co-Director of Securities and Exchange Commission Enforcement believes that the following action against both these companies will help the agency to encourage the other United States based Initial Coin Offerings to register with the federal securities laws.

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#Stellar

Stellar Wallet to Airdrop $125 Million Crypto: Will Airdrops also go the ICO Way?

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A Stellar-Wallet keeper, named simply as Blockchain, has announced on Tuesday the launch of an airdrop of Stellar Lumens (XLM).

A Stellar-Wallet keeper, named simply as Blockchain, has announced on Tuesday the launch of an airdrop of Stellar Lumens (XLM).  The airdrop it is valued at $125 million, making it probably the largest such consignment ever to be distributed to users in following months.

Each user shall receive $20 and thereby draw them into owning or trading in these decentralized assets. The estimated value of one lumen to the dollar stands at $0.2538 varying by 5.05% in trading times, according to market charts. The Stellar Lumen is the six highest in market cap rankings currently.

CEO of Blockchain Peter Smith made in his Tweet called the airdrop the “biggest digital giveaway,” adding that the introductory offer was on the back of adding XLM to the blockchain wallet.

 

Airdrops and their Ethics

Airdrops are the latest and most funky way to feed users with cryptos and get them to adopt the decentralized system. Airdrops are marketing gimmick or the generosity of spirit of wallet providers the question of ‘airdrops,’ and their genuineness looms large.

 

More by Blockchain

The Blockchain giveaway of XLM says it is encouraged by its “30M wallet users” and is excited that XLM is now available on their wallet platform with full support.” Additionally, the wallet has said that it will not keep any of the XLM for themselves.

According to Smith, the reason Blockchain chose the Airdrop method is because it will help drive decentralization as well as the adoption of new networks. For crypto users also, it is a highly useful option. It will allow users to trade, test as well as transact on crypto assets and will not have to worry about technical issues involved in buying these assets or mining these assets. The bottom-line is that the Blockchain Wallet is the safest method to use crypto.

 

Why Stellar was inducted

Besides, with the launch of Stellar on Blockchain, there is added scope, the CEO believes. The platform on which Stellar is built allows easy scaling solutions, which is just the base which Blockchain itself needs to move forward to meet strategic goals. Stellar’s token XLM is low cost, fast and easily lends itself to cross-border transactions despite millions of transactions happening in parallel.

The advantage with Stellar is that it is easy to create tokens which are customized for such use. They also allow real-world services or virtual services and more importantly a functioning ecosystem.

 

Airdrop Partners

The wallet provider has indicated that the airdrop will be in association with Standford d.school’s tech initiative called Code.org, along with Network for Good. These organizations will provide the necessary transformational technology for building a promising future, Blockchain authorities said.  The use of airdrop is to provide a stepping stone for the users to obtain and access tokens which will give them control over their financial future.

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Expert Take

As expected ICO Announcements bite the dust in Q3: Report

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Market analysis has led to the identification of the decline in the announcement of ICO projects in the third quarter of 2018.

Market analysis by a leading crypto organization has led to the identification of the decline in the announcement of ICO projects in the third quarter of 2018.

As per the report published by CoinGecko, the number of Initial Coin Offerings (ICO) in the third quarter did not match the projects announced and funds raised in the earlier quarters of the fiscal.

 

Low Q3 projects

The findings of the reports are highly self-explanatory. For the second quarter, the total number of projects which were announced needing further funds for expansion and growth was – 606. But the success rates or the number of projects which could convert or raise necessary funds were by nearly half – 267 projects. The funds raised by these were $7.73 billion.

In contrast, the numbers of projects announced in the third quarter were 388 projects, and the successful bids were a mere 193. But the downside was the $1.59 billion that could eventually be used between the successful funds.

 

Primary funding went to EOS

Notably, the funds which were raised was for the EOS project which had a year-long ICO for $4 billion which concluded in the second-quarter of 2018. It is assumed that the report considered this ICO for the period under study.

 

Other projects

Other details of the report indicate that of the 34 projects which launched tokens in the last quarter, nearly all of them were eventually registered on exchanges for cryptocurrencies. However, upon further examination, it was found that of the 34 only 7 were able to gain a trading value which was in line or above the money the fund had raised.

But the trading value could have been impacted by the typical market practice of token owners selling their wares once the project is listed.

The breakdown of the report shows that for every $100 an investor held in tokens in these 34 projects, their present market valuation would be $740. The funded projects were largely based out of the Singapore region, numbering 35 projects, over 19 were founded in the UK and nearly 6 in the US and Malta.

However, in the case of the latter two countries, the ICO applications may have been affected by the new set of a regulatory framework which these governments introduced.

 

Cryptos which topped these ICOs

The projects which were approved included the following 5 cryptocurrencies – BTC, ETH, XRP, BCH, EOS. These are currencies notably lower in their value in comparison to their prices earlier. The largest currency to have tripped in terms of prices over the three quarters of 2018 thus far has been Bitcoin cash which was 78% down, while others like EOS were down by only 25%.

Further insights from the report indicate that these five cryptos have been performing well, year-on-year and the only exception has been Ether, which loss by approximately 30% and is trading currently at $199.2.

Further, over 95% of the projects were using the Ethereum network and that these projects have sold the ‘ether’ they had raised via ICO and are yet to realize the gains from it.

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