Security Token Offerings STOs are the new ICOs
Ethereum is a platform that's built specifically for creating smart contracts.
With ICOs going through regulatory growing pains, with fraudulent feedback from the mainstream media and low success rate, we must strive to find more satisfactory means of funding blockchain innovation that are more legitimate. The U.S. Securities and Exchange Commission (SEC) hearings are changing the future of how cryptocurrencies work at the intersection of more stringent regulations.
If blockchain startups can have more credible ICO's it doesn’t really matter what they are called. This also opens up the floodgates for companies and new projects in virtually any field to tap into how ICO's work backed by tangible assets.
Would-be issuers of “utility” crypto tokens can be expected to encounter high costs, middling raises and regulatory risk. But there is a solution for
the beginning ICO's were magic. Young projects without a legal entity, domicile or identifiable management team were able to raise millions of dollars. They promised to build infrastructure that would unseat corporate titans without so much as saying hello to regulators and taxing authorities. Smash the banks, change the world and bring about some sort of libertarian crypto utopia Obviously that hasn’t happened.
Regulators are increasingly cracking down and taking interest in the blockchain space. While governments vary in their response to blockchain projects, it is clear that they will respond and that they will hold projects accountable to their laws. “Utility” token offerings designed as an end run around securities laws are unlikely to hold up, with the SEC say openly that they haven’t seen a true “utility” yet. In this space, just about every project is likely in violation of securities laws.
But there is an exit, a way forward that’s better for projects and investors and helps relieve the threat of government interference: Security Token Offerings (STOs)
Utility tokens, also called user tokens or app coins, represent future access to a company’s product or service. The defining characteristic of utility tokens is that they are not designed as investments; if properly structured, this feature exempts utility tokens them from federal laws governing securities.
By creating utility tokens, a startup can sell “digital coupons” for the service it is developing, much as electronics retailers accept pre-orders for video games that might not be released for several months. Filecoin, for instance, raised $257 million by selling tokens that will provide users with access to its decentralized cloud storage platform.
Because the term “ICO” is a derivative of “initial public offering” (ICO), utility token creators usually refer to these crowdsales as token generation events (TGEs) or token distribution events (TDEs) to avoid the appearance that they are engaging in a securities offering.
If a crypto token derives its value from an external, tradable asset, it is classified as a security token and becomes subject to federal securities regulations. Failure to abide by these regulations could result in costly penalties and could threaten to derail a project. However, if a startup meets all its regulatory obligations, the security token classification creates the potential for a wide variety of applications, the most promising of which is the ability to issue tokens that represent shares of company stock.
Online retailer Overstock recently announced that tZERO, one of its portfolio companies, will hold an ICO to fund the development of a licensed security token trading platform. The tZERO tokens will be issued in accordance with SEC regulations, and Overstock CEO Patrick Byrne has stated that token holders will be entitled to quarterly dividends derived from the profits of the tZERO platform.
Many industry observers — Byrne included — believe that mainstream companies will one day issue shares through ICOs, either in place of or in addition to traditional public offerings.
Strategic Coin is your go-to source for information about launching and participating in utility token ICOs. Whether you are a start-up or an existing business that desires to enlist the help of a professional utility token ICO advisor or a token buyer who needs help navigating the blockchain space, Strategic Coin will provide you with the resources you need to take advantage of market opportunities within the crypto marketplace.
Having said that security tokens have the potential to become the go-to form of funding for more established startups and for companies that want to tokenize their securities offering instead of listing shares on a stock exchange.
Security ICOs will likely become a real competitor to traditional IPOs as the costs for an ICO remain cheaper and as more investors realize the advantages of digital tokens over “real shares”.