Security Token Offering (STO) Model is Emerging
Those who are in the blockchain domain know that 2017 was a wild wild west in which some ICO founders and promoters raised funds with minimal white paper and without any credible use case, MVP or product. According to a report prepared by Satis Group Crypto Research, around 81% of the total number of initial coin offerings launched since 2017 have turned out to be scams. In dollar terms, however, only 11% of the approximately US$12 billion that has been raised in these projects went to these fraudulent ICOs, for which the US Security and Exchange Commission (SEC) has been cracking down upon and recommending some best practices for the blockchain crowdfunding projects.
One key practice, Security Token Offering (STO) model, has emerged, which works like a security but it comes in the form of a token. Most of the STOs follows Reg D’s 506(b) & 506(c), Reg CF, and Reg A+ crowdfunding exemptions. Unlike ICOs, STO tokens have 12 month lock-in period, and equity (voting or non-voting) is offered to the investors, so investors are holding onto the security tokens for a longer period of time (without the typical pump and dump scenarios that we see in some of the ICOs).
All things considered, Blockchain project founders and promoters may consider STO model for crowdfunding in the US. Investors may want to look at the type of offering (STO or ICO) to see if any equity is being offered before investing your hard earned money.
Disclaimer: This article is for educational purposes only and it is not an investment or legal advice. You may want to work with an SEC attorney or/and STO/crowdfunding advisor for your blockchain ICO/STO projects.