The rise of asset-backed tokens
The rapid changes taking place in the FinTech framework are making investors around the world both excited and wary. There are new buzzwords popping up every other day and investors are trying to keep up with all the changes and developments to the best of their abilities. ‘Bitcoin’ and ‘blockchain’ have been some of the most popular buzzwords of the previous years and they deserve to be. They have revolutionized the entire framework of financial technology and have a lot of promising potential for development of a thoroughly decentralized financial system. As Bitcoin continues to scale hitherto unheard of levels in the financial world, more and more people are beginning to develop their interest in the brave new world of cryptocurrencies.
The blockchain technology was the underlying component in making the cryptocurrency the huge success it is today. The absolute enormity of this technology and its implications are still being explored and studied. The immensity of the applications to which this technology can be applied has made blockchain technology an invention at par with the greatest of our times. That this exciting technology has the potential to touch every imaginable aspect of human endeavor has been acknowledged by all.
ICOs as a way to success
New ventures which are working on the blockchain technology have found an innovative way to raise funds for their businesses. They hold an Initial Coin Offer (ICO) wherein they issue coins or tokens to the interested investors. These tokens can be purchased using other cryptocurrencies or fiat money and they can also be made tradeable.
ICOs have recently gained a lot of traction and ventures have been able to raise millions of dollars through them. It eliminates the need of any intermediary and the capital raised is only for the company to use. There are, however, certain concerns when it comes to such ICOs and the tokens that are issued through them.
The first important problem that is observed is that investors are jumping onto the boat without actually knowing the destination. Not many investors have the required knowledge about the technology that the company is dealing with. They don’t know what the company intends to do with the money. The words ‘blockchain’ and ‘cryptocurrency’ seem to put their minds at ease and they seem to be sure of high returns, no matter what the company does.
Secondly, the tokens issued by the businesses are not backed by any assets. It means that in case the business never takes off, the invested money, be it in the form of fiat money or cryptocurrency, may just vanish without any trace. Most of the businesses do not offer any security against the token issued by them. They may offer a return on the investment in the form of a share in the profits, like dividends. This also acts as a barrier for many smaller investors who are relatively unaware and invest only when there is a certain sense of security. Lastly, ICOs aren’t regulated by any governing body.
