After the rise and fall of the ICO market, there’s a lack of confidence in the crypto space both from the regulatory and investor point of view. Though a few people earned a fortune, several people lost their hard earned savings in the crypto market crash. This can partially be blamed on the unregulated markets which provide manipulation opportunities to the so-called ‘Sharks’. To counter these issues, a new demand for Security Tokens Offerings or STOs has come up which are aligned with the regulatory frameworks and are backed by real assets.
Humans of Blockchain has gathered an industry-wide opinion from the best and brightest working in the blockchain space.
*These opinions do not necessarily represent the views of Humans of Blockchain ™
“So, basically the question is that what happens after the ICO market, the ICO market boomed in later 2017 and we are in a bear market now. But STOs is what people are talking about these days. STO is offering a digital token for security and it’s in a regulated space which provides a lot of opportunities but also a set of challenges. So, the question is that will the STOs follow a similar route as ICOs i.e a crazy fundraising mechanism for projects. What would be the timelines, regulations etc? An STO can be for a non-tech company too like a brick and mortar company. STOs, give us the ability to put the securities on a secondary market efficiently. So, this can change markets like VC, Investment Banking, Wealth Management etc.
In the US there is more clarity and more challenges related to security tokens because it is one of the largest markets. The SEC stepped up to put enforcement against ICOs but has invited companies in to discuss what a better framework can be in form of Security Tokens. We know that this tokenization of securities is already in process. The big question is that will they be in a framework that works. And if yes, it’ll become a big market and if not, you may see projects moving to other jurisdictions. Here we are in Singapore where people are ahead of the game in terms of projects and trying to get progressive regulations. You have offshore centers in Europe like Malta and Gibraltar looking at it. But the question is that from these offshore targets can you get investors from other EU countries.
If you have someone coming over from ICO advisory to STO advisory, it’s not much of a value add. So, you will need advisory to understand the regulations i.e legal advisory, you need advisory in tokenomics etc. “
“As the cryptosphere evolves, so does its regulation. Teams intending to raise funds are starting to realize that the interests of investors are more inclined towards “security” tokens instead of “utility tokens”, due to values possessed by the first. October 2018 has seen the most number of STOs than ever before. Security tokens create a real bridge between traditional finance like venture capital and new technologies like blockchain. Utility tokens serve as payment for certain services or as a symbol of access to certain tech.
STOs are subject to stricter regulation than initial coin offerings and, at first sight, this would seem to be the antithesis of the crypto movement. But the reality is that lending an increased legitimacy to the industry, STOs will likely help to increase the widespread adoption of cryptocurrency and blockchain technology.
People who purchased ICO tokens can only use them to get access to some future product, on the other side investors of security tokens have more tangible economic rights to the underlying asset – equity, or a portion of future revenues or profits. However, we have to consider that there’s a lot more to come in the future. Ethereum is coming up with a unique token standard: ERC-1400 specifically for security tokens. It is currently under testing phase by the Ethereum community. The tokenization of the economy is more near we think.”
“At this point in time, security tokens are still nascent, but in a few years, they could become the ordinary tool to raise capital. More and more major players – including governments – intend to enter the security token field. A growing list of stakeholders is determined to make security tokens the bridge between cryptographic assets and the larger financial system. New markets will emerge for under-utilized and illiquid assets, which were previously inaccessible. Cross-border trade will increase. Technology funding will be further decentralized and Security Token Offerings (STOs) will become established as a standard. In short, one may say that, if ICOs have been the trend of the last couple years, giving us a taste of what is about to come, the spread of STOs will take on unforeseen orders of magnitude in 2019.”
“With the rise of security tokens in the market, tokens will be the next big shot in the emerging future. The fundamentals of how the tokens are created, sold, kept and stay security docile are quite difficult than what is shown on the surface. However, all these are gradually transforming today. All you need to do is to get prepared for the overflow of your digital wallets. The tokens are being built at a fast pace and are getting operational daily.”
“STOs are essentially a regulated form of ICO that fit much better within the conventional regulatory framework. Investors have more rights, the picture is far clearer, and the rules are stricter. We haven’t seen the end of ICOs, but STOs are the preferred way of raising money right now – especially larger sums – due to the regulatory questions around ICOs.”
“I’m seeing now few tendencies: – Asset-Backed Tokens – Security Token Offerings (STO) With full KYC verification and with anti-money laundering system (AML) – ICO 2.0 with the product at the start of ICO. Projects that try to raise funds without presenting any visual and interactive interface usually fail. Plus strong team and full transparency.”
“It’s a logical step. The investors want to be part of the project and its success. The utilities are important, everybody will use some of them on blockchain platforms and are necessary for the operation of many projects.
But I think the STO’s are the future of crowdfunding, and the tokenization of stock’s securities will be the next step. The blockchain technology is perfect for securities, making cheaper and quicker every process. But in the end, every good business model will get its space in the industry, utilities or securities.”
“ICO’s proved to the world the ability to raise capital but also proved they need to be regulated to protect investors. STO’s are similar to IPO’s but with less strict financial requirements and can be done at considerable costing which will favor entrepreneurs.
Security tokens have many benefits which include cross-border funding, 24/7 trading, more complex versions of dividend policies and voting rights, fewer fees, etc which all come down to corporate efficiency. Practical examples can be if you owned 20 Apple shares for longer than a year you automatically receive a discount on your next iPhone. Also due to fractional ownership can support liquidity in illiquid real estate assets.”
“It is a natural progression. Go back to the Howie Test from the US – will the value of the token rise as a result of the efforts of the founders? Yes, that is normally the proposed trajectory.
So, financial experts tend to now advise that projects take in seed money in equity swaps – such as in the old fashioned way. Then issue a security token – use restricted investment criteria – on the basis that it will rise in value. Hence your security token. Finally, if your project needs a utility token, then do another round, restrict amounts, and sell them as a token for spending not for investing. Bingo!”
“I think the security token market is the natural evolution of the current market. I expect that as early as 2019 there will be an increase in STOs. Obviously, this can only happen if governments regulate the matter. In any case, I think the security token market will be the prevailing market for the economy of the near future.”
“I welcome them entirely. At Investors of Crypto, we are launching our own security token. It removes the ambiguity attached to the whole ‘Utility Token’ model. Investors can have confidence they are purchasing something that is specifically designed (not guaranteed) to produce a positive return. In addition to that Security tokens by their very nature need to comply with government regulations and therefore should become more consistent in their execution, giving people a bit of familiarity with what they are used to seeing.”
“Security tokens represent a substantial opportunity for the evolution of finance. They are different in certain ways from utility tokens in that you could never truly and fully decentralize a securities-based company. However, there are many opportunities such as the securities tokenization of
1) company structure
2) assets (short-term or long-term)
We recently covered the pros and cons of security tokens in the December 2018 edition of the Crypto Investment Times Magazine: http://cryptoinvestmenttimes.com/CIT18/The-Crypto-Investment-Times- Dec-2018.pdf There is a long way for securities tokenization but as an advisor for Polymath we continue to work heavily towards achieving this goal for a brighter and fairer financial system for all.”
“The STO market is the next big thing in cryptocurrency. Tokens are undergoing a massive shift and will look very different in a year from now. I think that security tokens are the way forward. Utility tokens have made the case that they aren’t securities since they have used within a blockchain ecosystem. Problematically, most of those uses are just added complications that were implemented only to avoid being regulated as securities.
STOs finally give tokens the freedom to be securities and not have all of these uses baked in to avoid regulations. Security tokens will be much different from regular securities because they have all of the properties of cryptocurrencies, i.e., they’re immutable/trustful/fungible/liquid, mixed with the ownership properties of securities. So really, it’s the best of both worlds situation when it comes to security tokens.”
“It is a natural progression in the evolution of tokenisation. Security tokens can enable a symbiotic decoupling between speculation and utility. It allows a project to mint a utility token that is truly grounded in the product economy and not to be interfered upon by speculators. This in turn allows for greater flexibility of token utility policy, without the risk of compromising the positions of thousands of speculators.
The security token can also more directly align to the valuation of the company whom is operating the platform upon which the utility token is redeemed. Your utility token may remain forever accessible in price to users of the product, but that does not mean that the entity receiving such revenue is worth the same as its utility tokenbase.
The trade-off to this approach is that the security token must comply to international securities laws and this once again raises the barrier to entry for would-be investors from domiciles who cannot qualify.
There is a lot going on behind the scenes right now to enable STOs to flourish, we have projects like Polymath which is trying to be the Ethereum for STOs. tZero, Open finance network which are looking to provide the exchange trading functionality.
Yes, in fact, one of our best performing projects this year is a security, Nexo. A great team and project which are providing crypto backed loans, I believe this project will go from strength to strength.
It is going to be refreshing to see more transparency in this market, it will be the pioneer for the next bull run and provide more needed liquidity. I think the short-term impact though is being over hyped currently and there is a much longer road ahead than people realise”.
“This is what I am afraid of. If this is only accessible to the big investors, it will not be okay. In Europe, we are trying to find solutions connected to the crowdfunding investment but also mainly to invest in hybrid tokens which is where I see a solution and that it will be still possible for the common citizen to micro-invest. This should be the goal here”.
“Perfect for smart contract driven financial decision making such as ESCROW payments in exchange for intellectual proprietary or industries such as supply chain and the property rental market. Ideally using existing platforms or digital marketplaces. A digital identity protocol is essential for security tokens to work effectively.”
“When we talk about STOs or Securitiezed token offerings, again this is crowdfunding. I encourage everyone to follow the Crowdfunding Professionals Association to learn more about the Ins and Outs of crowdfunding. Crowdfunding is crowdfunding, it doesn’t matter if you call them ICOs or STOs. When you do crowdfunding, you are soliciting lots of people or crowd and say “Hey! Invest in my hopes, dreams and aspirations”.
So with STOs, the only difference is that you are offering tokens and these tokens represent equity, the debt or the royalty that you’re otherwise entitled to. So, the token representing the security, the equity or debt isn’t new. You simply digitized the stock certificate with a token. So when you hear someone doing a STO, they’re doing crowdfunding.
The other thing to keep in mind when people are offering you tokens, currently, this is November 2018, there are no secondary exchanges that make buying/selling and trading of these tokens faster. This is always something that the STOs claim is happening because the theory of tokens is that they’ll add liquidity to the market. Where is this marketplace for liquidity for tokens at? Right now it doesn’t exist. Will it exist? Yes, probably by Q3 of 2019, you’ll see some actual exchanges are token marketplace. Prior to that, nothing’s going to happen, and remember, whenever you’re dealing with any type of security, there’s typically a lockup of at least 12 months if not longer.”
“STOs are gaining popularity, that is very true and for a very good reason. In an STO it is harder to cheat and harder to scam. STOs are more regulated than ICOs, the thing which provides investors with higher levels of assurance that their money will be properly used or at least the founders will not literally run away with the money.
The major difference between STOs which are driven by tokens and IPOs which are driven by shares is that the later one will cost many millions to run and the process is extremely slow and open only for the selected few, while virtually any person can run an STO for a fraction of the cost. Additionally, IPOs are sold in a certain jurisdiction, like the USA or UK, while STOs are more global by nature and available to anyone to participate and trade 24\7 globally.”
“STO is the future and it is beautiful. You see a lot of people are scared of taking part in crypto because they hear all these shit coins utility tokens are dying. Imagine if you still can play with these tokens with that peace of mind because the tokens you hold are backed up or attached to something tangible or of real intrinsic values. I feel STO is the bridge towards Mass Adoption.
And FYI, I am working on one STO project and I am learning many new things every day. The challenges we have with STO are the compliance, legalities and regulations.”
“The security token market will grow but it’s not a new concept. We already have equity performing the same role. Shares on the stock market is a security token. One is programmable and the other isn’t but there is not that much of difference.”
“My feeling is that STO’s, are just another label for ICO’s, that are generally based on ERC-20 tokens/Eth network, and they are mostly products or platforms that are securities, that claim they will pay dividends to investors. In a way they are just shares, or equity, of that project, that will hopefully be more adopted by regulators and investors.
More institutional play here, and less true decentralized cryptocurrency idea, of having a new P2P system of exchange, that is in the hands of the people, like they were designed to accomplish.”
“STOs are the future. I’m overwhelmed by requests from traditional companies who don’t want to go for an IPO but still need liquidity for their blockchain businesses and STO is the only way they have. I hope soon in Europe they may design a law to help companies to build their own STO easily.”