Initial Coin Offerings and Security Token Offerings are the duos of most major manifestations of the blockchain. Both these ‘offerings’ are meant to raise funds for startups. The last few months of 2017 and the first few of 2018 saw an unprecedented surge in ICOs, and it plummeted to its nadir very soon.
What was the reason behind it, and what was the passive contribution this nosediving of ICOs made towards the rise of STOs to prominence?
Above everything, what is the stark difference between these two that made one triumph over the other!? Let’s discuss all of those in the oncoming lines!
ICOs, on the surface, might seem like yet another way to raise money, but ICOs aren’t based on solid assets. This has rendered ICOs being quite unregulated and this has paved way for a lot of scams to take place. ICOs might not entitle the investor to any securities or equity in the company, but rather an intangible privilege that might not essentially translate into profits for the investor, either in utility or money.
The companies define a use case that helps them raise money through ICO. However, considering the volume of the raised money, only a small portion of it is required to maintain the network. ICOs don’t offer any security promise in case of unanticipated malicious events like hacks or stolen account information.
The unregulated nature, the greed of some individuals and the non-interference of the government or any regulatory body has resulted in over 80% of the ICOs being scams. This has not only tarnished the image of ICOs but has also extrapolated the resistance of investors towards any blockchain or digitally powered means of investments.
STOs, however, are backed by real assets and are completely regulated. In fact, the presence of the term ‘security’ puts them under the SEC of USA, meaning STOs have to establish their compliance with a lot of regulatory requirements. Since it is backed by a real asset, the values are tangible. It entitles the investor to equity or a share in the company. In addition to the monetary privilege, functions also in the title the investor to rights of voting and revenue distribution. The combination of regulation, transparency and the immutable trail of the blockchain makes STOs one of the most lucrative and dependable avenues of investment.
How did STO bridge the gap?
The regulatory requirements like Reg D, Reg A+, and Reg CF come into play invalidating and legalizing the STOs. The very presence of the term ‘security’ makes the STOs fall into the regulatory framework of the SEC. this would also mean that they can take advantage of exemptions like Reg A+.
Circumventing regulatory requirements by using language-loopholes is no longer possible with ICOs. The involvement of the SEC discourages fraudulent activities and individuals from opening an STO. which serves as the much-needed filtration step for making companies available only for legitimate companies that have a defined revenue model and goal. This makes the STOs quite similar to IPOs which has always been a favorite among investors.
Market experts and cryptocurrency evangelists believe that STOs are the much-needed break that both technology and finance were looking forward to. The market for STOs is estimated to be at $10 trillion by the year 2020. With the growing acceptance and the decision-makers in finance becoming more aware of the advantages of STOs and the blockchain technology, STOs are set to dominate and democratize the world of investments. The progress into the world of STOs might be quite slow but it has to be agreed that it is quite studied and is recovering quite well from the initial blow caused by the ICOs.
In its heydays, ICOs had the wow-factor it took to become an instant hit with adventurous investors, in spite of its limitations. With the advent of STOs, the investor pool is expected to increase and this will also break one of the biggest hurdles that blockchain companies have been facing.
Blockchain App Factory offers you an option to create your own STO or ICO for that matter. Our thorough understanding of the technology, the regulations, and the business makes us one of the best companies for launching your own ICO and STO. All it takes for us to drop us a line and we will create a regulated pathway for your organization to capitalize on the awesomeness of crowdfunding through blockchain.