2017 was the year of Initial Coin Offering (ICO), a new way for companies to raise money. There was a time only a few people knew about fundraising gold rush of Bitcoin and Ether and now the market is flooding with a whole new set of tokens which are being appreciated by a few and refused by a few. We had observed a lot of projects come up with their tokens in the market but for the last few months a new trend has taken over the market i.e. Security Token Offering (STO).
STOs have not had the best history. By the end of 2017, the United States Securities and Exchange Commission (“SEC”), made it straightforward that pre-functional utility tokens sold with an expectation of gain were, in fact, a Security Offering. This sparked the beginning of a regulatory compliant security token offerings in early 2018. Though, shortly afterwards, there was an issue as the growing pressure from International Securities Regulators made it impossible for cryptocurrency exchanges to list security tokens, a non-issue for non-security tokens, such as traditional cryptocurrencies or utility tokens.
Now, the US Securities and Exchange Commission (SEC) has been working to oppose fraudulent and noncompliant ICOs in order to signify and implement better standards in the industry. In light of the many issues raised by the ICOs, the security token (STO) offers to appear as the new crowdfunding method and could be the next important step in the growth of the sector.
By leveraging the versatility of security tokens, companies are discovering that the various components of a company’s value can now become liquid, tradable and investable. Investor interest is growing in STO, as they provide the liquidity benefits of cryptocurrency without the same risk profile. For people who are seeking to raise money, an STO is worth the investment for many good reasons. If the goal is to establish a large amount of capital, then STO is the path to be taken but keep in mind a few points which could make or break your company profile.
It is ideal to consider an STO if your organization is:
Desiring greater liquidity for stakeholders
Generating $10 million in annual revenue
An elevated growth company
Operating a global business
Issuing a transferable asset
STOs offer better fundraising potential because the tokens that investors receive are actual stakes in the business or project and its assets. We know that ICO fundraising was almost concentrated on bringing in investment but not how to utilize the capital collected productively as such getting the consensus system up, running, and growing. Whereas, STO opted to ensure that they agree with the regulatory bodies and take a favourable time to make securities liquid, transferrable, and transparent.
When it comes to cryptocurrency investments, STOs are considered to have low risk because of diversity in the security token in comparison to ICOs.
Whilst there are some advantages of STOs, it’s true this way of raising funds is not suitable for everyone. But despite the significant burdens and expenses involved, we still believe that 2019 will be the year of the STOs for the following three reasons:
Crypto startups will want to raise money
Institutional money wants to invest in crypto
A number of STO exchanges and platforms are ready to launch
Running an STO requires that businesses create and manage tokens which means ensuring that they have the right security in place. This trend might be disappointing to many old school crypto enthusiasts who are still intellectually tethered to the decentralized, government-resistant benefits offered by traditional ICOs.
So get ready, the next big wave in crypto is coming in 2019. Will you be prepared to ride it?