We look back and call 2017 undoubtedly as “The Year of ICOs” with raising of over $22 billion. This includes companies of all sizes. Companies who are in ideation phase of their revolutionary projects and companies who plan to do reverse ICOs, both have benefited from this type of crowdfunding.
The gold rush was due to the hype created and subsequent rise of Bitcoin and Ether’s price, however, the real reason was due to the liquidity provided by the ICOs and that they are not restricted by regulatory authorities. The reason for unrestricted crowdfunding is because of the lack of clarity from regulatory bodies and the tentative nature of regulators to bring in the much needed structure to the blockchain based crowdfunding.
Once the SEC declared ICO as securities, a major debate between crypto-community and the institutional investors regarding the status provided to the crowdfunding campaigns came in the limelight.
To clear the air, a security is a contract of investment recognized by regulators, for the preservation or appreciation of capital, whether it is ICO, STO, ETO or other traditional crowdfunding methods. To be in a security contract, it requires an active counter party, such as an issuer of tokens. Seasoned investors talk about ICOs in terms of stocks or bonds that are tokenized on the blockchain to enhance liquidity and transparency in the ecosystem. However, investing in a utility token in expectation of profits is more or less a security.
So what are the benefits of STOs and ETOs?
When you compare Equity Token Offerings with traditional equity transactions, there are three key problems: security, transparency and time. The concept of T+3 is very common in stock market i.e. a transaction takes 3 days to process, which enables traders to play the game of short selling.
The benefits of security tokens are numerous and this makes them accessible to a global audience while making it transparent and secure in a 24/7 instant trading. In private equity markets, liquidity in markets is rare and these traditionally illiquid assets are exposed to new types of investors.
Tokenization of assets can be coded for fine tuned customization in the smart contract for regulations in SEC or MFSA. From compliance perspective, elements such as, KYC can be integrated into the ecosystem while transaction limits, vesting period and secondary trading restrictions can also be integrated into the tokenized stocks. In addition, standard procedures in equity tokens such as, voting rights and dividend issuance(both fiat and token splits) are possible in blockchain based tokenization.
By leveraging flexibility of security tokens with compliance requirements of regulators, STOs, ETOs and TAOs offer different value proposition to the investors with liquid, tradable and investable assets.
The world economy is globalized with a transparent and connected market and with the advent of STOs, transferrable, liquid and secure investment contracts are available for both issuers and investors. This will lead to creation of a new standard for IPOs, thereby, reducing the cost of compliance and better returns for investors. The innovation of tokenized equities, securities and assets enables companies to have better investor relations even when they are poles apart.
At Blockchain App Factory, we are a Security and Equity token development company enabling a new array of investments and are opening the crypto-market to institutional investors who were initially hesitant due to the compliance and regulatory issues.
Retail investors have the ability to sell a portion of their assets or equity tokens to the secondary markets while brokers can sell voting-enabled tokens to the international markets. Through DAOs or Decentralized Autonomous Organizations, companies can ensure better corporate governance structures through the use of smart contracts on a blockchain, while including a human element to the voting preferences on the code. The opportunities prevailing in the STOs and ETOs are limited to the mind of the innovators and at Blockchain App Factory, we make sure that our technological expertise will help our client to play a crucial part of this fintech and blockchain journey.