As Barry Silbert stated , the ICO market is dead. With the opinion of the head of the Digital Currency Group, the majority of the cryptocurrency community agrees. According to the research company ICORating , a huge number of startups attract funds through STO . Security Token Offering is the withdrawal of security tokens to the stock exchange , which have now become a real trend.
The boom in ICO in 2017 just a year later turned into a “dump of offers”that no one needs. Or rather, deceived investors simply lost confidence. The ICORating reports for the three quarters of 2018 recorded an exceptional decrease in the amounts that projects collect. In the third quarter alone, the drop reached 70% . The saddest thing is that the scammers are still trying to extract investors’ money and as a percentage of normal projects, they are many times more. The average amount of fees, which is announced by the teams has grown to 1-5 billion dollars, more carefully preparing the “packaging” in the form of a website, promo, whitepaper. But in a detailed analysis, it is clearly visible that these are all the same unsatisfactory organizers whose goal is simply to collect money.
It is also worth noting that against the background of the loss of important customers, from such markets as the American and European , the trend of investing from Asian countries and the focus on the Russian market is increasing . Anastasia Denisova , chief analyst at ICORating, commented that the turn towards the Russian market is due to the fact that participants in the crypto market from developed countries simply do not believe in the ICO and do not want to invest in it is unclear what. Until now, many people do not pay enough attention to competent documentation for investors and get along with general concepts and descriptions of their “ideas”. In the Russian-speaking space, there are still many who are willing to invest inhigh-risk ICO , which is natural to the organizers only on hand.
Until now, one of the most important issues, even for normal ICO projects, is its regulation at the legislative level . Countries still have not come to a general assessment and response to digital assets. One of the leaders in terms of favorable conditions for such projects is Singapore , although in the third quarter negative dynamics was recorded. Also, many projects are registered in Malta , which has become quite transparent on the part of regulators.
STO as a progressive alternative
Despite the fact that many investors lost their investments in fraudulentICOs back in 2017, the wave of disappointment became noticeable in 2018. More and more projects carried out initial placement of coins, in which so-called utility-tokens were offered instead . This means to get access to the service or product of the project. The main feature of such tokens is that it is not an investment in the project. The “investors” have neither a share in the company, nor the corresponding rights that are just present in security tokens .
The big problem in regulating utility tokens is that they are not backed up by any assets that would ensure their value. In confirmation of this can be noted the US Securities Commission (SEC), which control cryptorok and such tokens does not recognize.
Harry Jensler , the former chairman of the CFTC ( Commodity Futures Trading Commission ), said that even ether and Ripple can be considered securities. Jay Clayton , chairman of the SEC in March 2018, noted that many tokens that fell under the analysis of the commission can be regarded as securities. Each of them implies a material interest and an investor. By purchasing them, it is the calculation of future income.
Against the background of non-compliance with the rules of regulators by the projects, internal coins appeared – security tokens . They are provided with profit, assets, cash flow, due to which coins have their own value.
This is how STO ( Security Token Offering ) appeared. The process itself is similar to the format of the ICO . Security tokens are also transferred to investors. But by participating in STO, investments are made to receive dividends and the right to vote, which, like other assets, are tied to securities.
STO held in full compliance with legal regulations . Due to this, investors from different countries can take part in a cryptocurrency project without violating the laws on securities established by their states. Most important are these requirements for countries such as the United States .
Nathan Rodriguez , co-founder of Chainbits has published a detailed article about what is STO . In it, he noted that a very important aspect of Security Token Offering is the ability for companies to create lists of unscrupulous individuals ( blacklist ) and accredited ( whitelist ). This greatly simplifies the issue of KYC compliance and assistance in the fight against money laundering, which is often present in the ICO . Rodriguez wrote that in something STO has even more in common with IPO, and thanks to the requirements for open information, the risks of fraud are significantly reduced and there is a protection of investors’ rights if the company goes bankrupt.
Due to the fact that there are clear rules in STO, this can attract institutional investors . Such a course of events will provide the crypto market with a large influx of funds and will provide an opportunity to develop the whole blockchain sphere even faster.
At the same time, Anastasia Denisova notes that at the moment security-tokens are still low-liquid. The first reason is a problem in security exchanges that have not yet been launched. The second reason is the small number of completed STOs by the current time. Basically, these are large-scale projects like tZERO . But it is the launch of this platform that can contribute to a more global popularization of security tokens . Already concluded a partnership with one of the operators of the Boston Stock Exchange options . Within it, a platform is created for these tokens .
In conclusion, we note that STO is a new step in attracting funds to blockchain projects, which gives many times more guarantees to investorsthan ICO. Due to its peculiarities, such a format is able to attract more funds for crypto devices in the near future.