[vc_row][vc_column][vc_column_text]Security Token Offerings, are in a number of ways, similar to ICOs except that STOs are backed up by investment assets such as stocks, bonds, and real estate investment funds trusts (REIT). A security token is issued to an investor to represent their investment.
Initial Coin Offerings took the crypto market by storm in 2017 and 2018 but are today a mirage of their former selves. It is largely believed that ICOs’ momentum has seen its last days after a series of scandals, bankruptcies, and hacks to what was once a revolutionary way of raising capital for new innovative ventures. Consumer confidence in ICOs has plummeted to an all time low.
Despite the numerous holdups that ICOs have experienced, we are now seeing a new class of digital assets developing in the form of security tokens- STOs as they are called. STOs promise better regulation and a robust system that will eliminate the major failings of its predecessor- ICOs.
2019: The Year of Security Token Offerings
Security Token Offerings are tipped to be the next generation of ICOs. They are to a large extent, a better alternative and more secure compared to ICOs. Since the emergence of Initial Coin Offerings, the crypto market has been rocked with regulatory uncertainty over these new digital assets. With the numerous fraudulent schemes, hacks, and bankruptcies later, ICO appears to be on its last legs as consumer confidence remains shaken.
The lack of regulatory frameworks in ICO market is to blame for its failings. Many in the media and public domain shunned ICOs for its lack of regulation and the resulting Ponzi schemes which saw many investors lose their money.
STOs promise to offer better regulation and eliminate the shortcomings experienced with ICOs. STOs are designed in a similar way to traditional Initial Public Offerings (IPOs) meaning that investors have a legitimate stake in the returns of a successful project. Besides, STOs offer a clear and safe approach for both issuers and investors as they are based in the heavily regulated securities exchange sector.
The rapid market growth and expansion of ICOs outpaced the ability to regulate them effectively. For many national authorities, this became a wild goose chase. However, a number of jurisdictions have taken a step in the right direction including Switzerland and Singapore who have in place formal guidelines on the areas of token issuance and crypto sales. In contrast, large authorities like the American Securities Exchange Commission are still lagging behind when it comes to offering direction to consumers. However, SEC recently has begun to crack down on non-compliant issuers while keeping a close eye on the market. The obscurity of regulation has prompted many institutional investors to shift to STOs as a safe and secure alternative to ICOs.
From the outset, STOs are created to follow formal guidelines and align with existing securities market laws and standards. STOs can be traded on the floor of fully fledged exchanges where investors and token issuers are protected under the standard legislation that apply to traditional securities exchange. While STOs are still on their nascent stage, industry experts on token movement agree that these merits will play a key role in attracting institutional investors, resulting in speedy growth of the market as a whole.
The shift to STOs will not only result in maturation of the industry but also provide a platform for the cryptocurrency market to grow. The increase in consumer confidence will encourage investors who were on the fence in the last token economy to enter the market due to the regulation and added layers of security that STOs provide. The proliferation of institutional investor will act as the needed catalyst for the crypto industry, boosting the economy and pushing it towards widespread adoption.
Besides the influx of mainstream investors in STOs, we are witnessing a burgeoning of Over-The-Counter (OTC) transactions as more trading desks are being set up. Unlike the past, STOs is rolling out a new frontier where institutional funds are flowing into the crypto space. The increased flow of money adds to the diversification of the cryptocurrency economy to cater to a variety of assets. In addition, we are likely to see increased innovation and creativity when new types of securities are created to serve the diverse crypto industry. However, there is the danger of institutional play becoming dominant and locking out retail investors. To prevent such a situation, security brokers will have to be vigilant to maintain fairness and equal participation in STOs.
As 2019 ticks forward, we are going to see STOs become more prominent as issuers get a handle of regulatory procedures. They will also seek to comply with standards set by relevant authorities. The STO industry will be interesting to watch out for in the coming months as more secure trading platforms begin to pop up. Currently, big companies such as Coinbase and tZero are building trading platforms to enable the exchange of security tokens. The entry of mainstream players will boost access and bring much-needed credibility, making security tokens a mainstream thing.
The Emergence of Fully Compliant Crypto Exchanges
Along with the emergence of STOs, fully compliant crypto exchanges are taking center stage. Reputable companies like The Intercontinental Exchange (ICE) have already put their money to develop open and regulated platforms for the exchange of digital assets.
For example, the enterprise created a new company called Bakkt, which is hosted by Microsoft Cloud Solutions. Bakkt is a global network consisting of an integrated platform that allows consumers to conveniently buy, sell and store digital assets on the network.
This project was a collaboration between ICE and a host of other marquee organizations such as Microsoft, Starbucks, BCG, and other key players. This has created a level of trust in exchange platforms and this will directly have a positive effect on the development of STOs.
In conclusion, STOs will not only block the holes of ICOs but also make up for what is lacking in crypto-regulation. By operating in the way traditional securities work and traditional trading platforms operate, STOs will be easier to adopt. Security tokens will also act as a hybrid between ICOs and traditional trading platforms because it is an intersection of these two methods of fundraising. Undoubtedly, STOs are the new generation of secure, safe and regulatory compliant method of investing.
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