Are Security Tokens Killing ICOs?

As the cryptomarket continues to evolve, the emergence of new trends and technology reshapes the playing field. Security tokens give companies the ability to utilize blockchain technology while remaining compliant to today’s financial standards. As the security token market expands, the ICO market appears to suffer. This has led many to the question — are security tokens killing ICOs?

There is no doubt that the ICO market shrunk considerably ever since the introduction of security tokens — but are two correlated. A recent study conducted by ICORating shows that while security token adoption is on the rise, it is still utility tokens which are the most successful in the market.

Market Shuffle

According to the same report, utility token offerings decreased by 10.07% in Q2 2018. This decrease reshuffled the market. Today, 49.05% of all token launches are service tokens. Service tokens are used to pay for services within a platform. These tokens grant users access to a particular platform or service provided.

ICO Data via ICORating

Utility Tokens

Utility tokens make up 25.3% of the total tokens issued this year. A token is a Utility token when it represents a certain protocol. Examples of this type of token are Ethereum, NEO, Stellar, and Cardona. These platforms can issue new tokens on their infrastructure.

Hybrid Tokens

Hybrid tokens make up 12.47% of the tokens issued in 2018. These tokens provide users with some form of payment for their participation or work performed. These tokens can provide payment for services as well. Hybrid tokens continue to increase in popularity as security token usage expands.

In most instances, a token will start off as a security token during the ICO process and then convert to a utility token upon the completion of the crowdsale. The SEC determined Ethereum followed this timeline. Today, tokens can offer equity and access to utilities, services, and platforms.

Security Tokens

Security tokens account for 6.54% of the token issuance market. These tokens follow strict securities guidelines. These regulations require that both companies and investors reveal their identity and financial information. While security tokens are one of the fastest growing areas in the market, it is interesting to mention they are not yet as effective at raising capital when compared to utility, or hybrid tokens.

There is a growing number of crypto analysts pointing towards security tokens as the future of the cryptomarket. These tokens provide a gateway for traditional investment firms to enter the crypto market. For this reason, analysts predict security tokens will dominate the market in the coming months.

The remaining categories include payment cryptos (6.54%), reward tokens (1.55%), and vote tokens (0.52%) respectively. Of the token categories, hybrid, reward, and utility tokens raised the most capital this year. Security and service tokens raised the least. In total, STOs averaged around $250,000 in funds raised per event.

Market Overview

2018 ICO Statistics via ICOdata

According to ICOdata, there were 1181 ICOs with total capital raised at $7,320,445,133. The ICO market took a hard downturn in July when it dropped from $800,000,000 to $400,000,000. The market continued to shrink since then. Last month was the slowest ICO month to date with around $150,000,000 raised.

The Results are Inconclusive

While the increase in security token adoption seems to be cutting into the ICO market it isn’t the main issue causing the market to falter. The SEC continues to crackdown on ICOs with charges filed against multiple ICOs this year. Ultimately, this pressure fueled the troubles experienced in the ICO sector.

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