By the year 2018, Initial Coin Offerings (ICO) have become a preferred method of funding and supporting entrepreneur projects and ventures, gathering more than $300 billion around themselves. Every second project out of 1000 has been successfully launched, grossing the average of $13 million.
EOS and Telegram, one the most inspiring and prominent ICOs have gathered the mind-boggling $58 billion dollars in just half the year.
Generally, ICOs are well-known and large in size, but then it becomes apparent, that many of them have serious issues. While hardcore blockchain and crypto enthusiasts are still trying to understand how ICOs work, to engage in their creation, more and more people are turning their looks at the “revolutionary” Security Token Offerings (STOs), that are called out to change the overall outlook on the market of entrepreneurship.
What are ICOs?
To understand, why crowdfunding and investing, we will need to view out all the shortcomings of an average ICO.
Direct Benefits
With ICOs, startup owners can sometimes exclude the traditional methods of early investments and raise funds from the crowd investors with a direct interest in their projects.
A key advantage of this type of fundraising is that instead of selling equity to early shareholders, the company issues special tokens, which can help investors to receive dividends from their initial investment of the business in direct ways (with the increasing market turnover).
While in theory the idea of having so-called functional tokens that are not securities and that power the company’s business, sets itself as a sound strategy, but in practice, very few projects are truly selling functional tokens for the project, and by the glance of most people, it leads to the thought that almost all ICOs are skirting securities laws for their own benefit, while leaving the investors with nothing.
Scams
One of the major problems with ICOs, which we do not regard as needed is that some of them are scams. And then there’s the major issue surrounding the fact that a specific amount of sold tokens are actually not tokens but securities, which comes into a direct violation of the U.S. securities law. And if you thought the Securities and Exchange Commission (SEC) will let all the free untaxed amounts of money to flow by, that is inherently wrong.
So what are STOs?
There are at least a couple of drawbacks to crypto, including the “abuse of opportunity by certain players, misconception of decentralization, and unknown territory for municipal and federal regulators.”
STOs provide a more thought out and innovative approach to funding of capital, that frees access to both investment and capital ways, while providing transparency to all of the services in question.
STOs allow issuers to get rid of all the “middlemen” which can bring people many advantages: tiny fees, smaller waiting times during the deal execution, and enabled access to a much larger number of potential investors. It also brings the advantage of being immune to any sort of manipulation from the projects side, since it all is under the tight control.
While STOs still represent a tiny fraction of tokenization transactions today, this will be a rapidly expanding segment moving into 2019 and 2020.
Overtake of the market by the new STO type is not only one thing, which will change the general fund-raising mechanism. STOs will eventually overtake the throne from the traditional fundraising campaigns.
As public markets continue to gain interest from all the sides, significant American and European capital is predicted to flood into the crypto-assets ecosystem in search of new places of investment, and this capital investment is going to come in the form of legal securities, backed up by the government.
Conclusion
STOs, when they undergo authorization, is attractive to many types of investors due to reduced risks, efficiency, transparency of the ledger, and an enhanced level of protection for all parties involved in the transaction. As we get further into the future, we will likely witness the increase of enforcement by SEC on non-compliant ICOs. And that will greatly increase the number of people, willing to invest in the new world of crypto.
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