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Clemen Chiang

Ph.D. | CEO | Investor | FinTech in Stocks | Blockchain in Cryptos | Singapore

STO Tokenization Could Shape The Evolution Of Crypto-Banking 09 Oct 2018

STO Tokenization Could Shape The Evolution Of Crypto-Banking

Cryptocurrency was once the future of banking for many investors. It was the radical, visionary approach that would make traditional banking obsolete. Today, crypto-banks are a little more mainstream, a little less radical and in need of evolution. Issues with regulations and initial securities offerings continue to slow the momentum of the industry. Many start-up creators and investors say it is time to embrace Security Token Offerings (ISOs). They see this a great new venture for improved private stock exchange experiences. Is this really the case? Or are ISOs here to stay?

The current problem with Initial Coin Offerings (ICOs) is the lack of security and regulation.
At the moment, cryptocurrency and crypto-banking are seen as risky ventures. The official line from major national regulators is still one of caution. Therefore, cryptocurrency can’t attract those that aren’t willing to risk big. The issues are simple:

  1. There is no regulation to protect investors and no rights for shareholders.
  2. There are security risks when it comes to trading.
  3. The lack of transparency opens the door to scammers and lost capital.
  4. It all seems a little old-fashioned for an evolving cryptocurrency.

When all these issues are laid out like this, it is no wonder that many cryptocurrency advocates champion a new approach. The only way for cryptocurrency to thrive and develop is to improve its appeal to investors.

Tokenization with STOs could be the answer.
These new security tokens could help transform the cryptocurrency industry into something much more appealing and accessible. These tokens offer the following:

  1. A fully regulated share of the assets for improved protection.
  2. A low-cost solution for easy access to capital.
  3. Compliance with international laws on the same level as traditional banks.

Essentially, this is a way of bringing the best of both worlds together. Some cryptocurrency veterans may see it as a compromise, or even a step backward. Yet, there are hopes that this new approach could change crypto-banking for the better. Improved regulation lessens that sense of risk. Compliance with international and national laws could finally put crypto-banks and advisors on the same page. The end result here should be a greater acceptance of cryptocurrency as a legitimate player. There are still risks involved, like any investment. However, the security of the STO is just enough of a safety net.

There is still some debate over whether or not STOs are the future for cryptocurrencies.
Those that are used to the rebellious, alternative world of Bitcoin might not approve of these compromises. Some will argue that as long as ICOs remain complaint and trustworthy, there is no need for any major change. Then there are those concerned that the whales will overrun the system. These giants of cryptocurrency are sure to take advantage of this new tokenization, and the young investors they bring in.

Yet, there is also the idea that these new tokens could appeal to younger investors on the private stock exchange. As with all industries, crypto-banks need to appeal to the youth market. Any bank needs to stay relevant, regardless of the currency or methods. This improved security and wider access could open that door. Cautious newcomers could find these low-cost stock options, take a less-risky gamble and see if it pays off. It all sounds like the perfect way for them to dip their toes in the water.

It is still early days in regard to these security tokens. Time will tell if they actually do draw in the young investors promised.
Crypto-banks have to evolve like everyone else. They need to prove that young investors have a chance to succeed. We have to remember that this isn’t an entirely new concept. We can trace some of these ideas back to SAFT (simple agreement for future tokens) agreements. Rather than seeing a complete shift into STOs from ICOs, it is more likely that we will see a divide. Established companies and new startups will have a choice between the tried-and-tested formula and this new approach.

There is an interesting article from Forbes earlier this year that makes a bold prediction on the future of STOs. They claim that if this was the year of “realizing the mistake of the utility token”, then 2019 will be when we see the rise of tokenized securities. In other words, the coming year is a chance to rectify early mistakes made in the cryptocurrency industry and to spark that evolution into a more secure era. Security token offerings will come into their own in 2019, but at what price?

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References:
1. https://bravenewcoin.com/insights/what-are-security-tokens-and-how-will-they-transform-icos
2. https://www.forbes.com/sites/rachelwolfson/2018/09/16/institutional-investors-bet-on-crypto-market-with-tokenized-securities/#4427933b7a48 
3. https://coinreport.net/security-token-offerings-part3/

security token offeringSTOICOcrypto-bank
The Bench — blogs about ICOsThe Bench — blogs about ICOs

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