2017 has been a crucial year for the blockchain universe and the crypto world. In mid-December, Bitcoin exceeded every previous record by almost surpassing the $ 20,000 threshold in value and ICOs raised a total investment of about $ 6 billion all together.
Along with the excitement that started building up at the sight of such unprecedented results, however,the scams and the hacks, the temporary collapse of Bitcoin and trivial errors committed by unskilled investors also started to hit the market, which seemed to come tumbling down on all us crypto-enthusiasts. Let’s face it: one of the main reasons behind the attractiveness of the ICO market to the eyes of investors, i.e., limited controls and regulations, has proved to be one of its biggest weaknesses.
The year of the booming ICOs is now behind us, even though the best ICO projects will continue to emerge and thrive – at a slower rate, of course – but we can strongly say that 2018 is the starting year for the popularity ofSecurity Token Offerings (STOs), in many countries now regarded as the safe and reasonable response to ICOs.
To begin with, the word «security» included in the name makes the philosophy behind it not too hard to understand: security tokens must be supported by tangible assets, e.g., corporate earnings. STOs also require licenses approved by the American SEC or other regulatory bodies in other countries, such as the Swiss FINMA. These alternative kinds of offerings function as offerings of company shares, only exploiting the advantages of using security tokens as a digital «resource». Any type of tangible asset, including real estate, can be «tokenized» or used to support a security token.
Security tokens can accelerate the democratization of venture capital. Blockchain technology and smart contracts introduced an efficient means to raise capital without the use of intermediaries and serve as the basics for the creation of security tokens, too. As a vehicle for fundraising, security tokens allow companies to raise capital without having to turn to investment banks and stock exchanges. Businesses like Securitize, Polymath and Harbor, along with completely “tokenized” funds such as Spice VC, demonstrate this very well.
Given the legal control guaranteed by the U.S. SEC, FINMA Switzerland and other regulatory bodies on the token offering, investors can invest without having to worry about vetting the credibility of the project. Their only concern will be the financial success of the company, just the way it was with the good old stock issuances, making them much more prone to risk their money. With easier access to capital, the rise of new «unicorns» will be accelerated, as well as the disintegration of rickety companies. STOs will contribute to the formation of an unstable, meritocratic scenario, where even the venture capitalist will be able to invest and eventually exit the projects much faster.
The blockchain and distributed ledger technologies already allow today the tokenization of otherwise illiquid assets, from real estate to fine arts, asset categories otherwise previously reserved to the super-rich. Security tokens make it possible to apply fractional ownership to the most expensive real estate, thus giving anyone the chance to buy“a piece” of it. One might think that this is similar to owning shares in a real estate investment fund (REIT), but investments in security tokens offer much more flexibility to the investors, and they are not the only ones enjoying it!