Why SupplyBloc is Transitioning from an ICO to an STO?

An STO Provides Mutual Protection, Security, and Longevity for Our Project and Our Valued Investors

The latest buzzword in the crypto community is STO or Security Token Offering. Unlike much of the hype that surrounds crypto, the recent surge of interest in security tokens is wholly justifiable and should not be shrugged off as another inconsequential trend. Securitized tokens will more than likely begin outnumbering the formerly popular “utility” tokens in the very near future.

These new security tokens offer somewhat of a middle ground for SEC regulators and industry pioneers. This informal compromise is promising to propel cryptocurrency-funded projects into a realm of increased legitimacy and financial security. The days of “take your money and run” ICOs are quickly coming to an end and safer, smarter, and ultimately stronger STOs will be taking their place.

What is the Difference Between an ICO and an STO?

Brief History of ICOs

The concept of an ICO (Initial Coin Offering) was first posited in 2013 by a developer named J.R. Willet via his Mastercoin project. Mastercoin was designed to be a middleman that transformed the Bitcoin blockchain into an application development platform. It was one of the first attempts to enable developers of all shapes and sizes to harness the power of the Bitcoin blockchain for their own applications. While the Mastercoin ICO raised a relatively significant sum of roughly $500k, the actual implementation of the project faltered due to the technical limitations of the Bitcoin blockchain script language.

Less than a year later, Vitalik Buterin introduced the world to Ethereum. With the Ethereum network, Buterin and his team managed to fill in all of the technical gaps that had hindered previous attempts to develop apps using Bitcoin’s blockchain protocol. The strong focus on customizable smart contract developments along with a much more comprehensive scripting language enabled Ethereum to provide a robust platform for the creation of complex blockchain applications. Understandably, Ethereum raised $18.4M in its ICO and set the stage for the future surge of coin offerings.

One of the most important aspects of the Ethereum network has been its release of the ERC20 protocol standard. This protocol has made it incredibly easy for fledgling blockchain startups to create crypto tokens that can be used as they see fit. And so Ethereum’s blockchain platform has fostered the enormous growth of blockchain applications, while their ERC20 protocol has become the ultimate tool for launching an ICO.

Bright Ideas Corrupted By Bad Actors

ICOs or Initial Coin Offerings are essentially crowdfunding projects where a company sells a “utility token” (typically created using the ERC20 protocol) in order to raise capital to support their development. The tokens sold in an ICO are most often integrated into that project’s blockchain system in some fashion and are therefore described as functioning as a “utility”. Still, a utility token is not tied to any tangible assets and can potentially become valueless immediately after an ICO is complete.

ICOs have been a tremendously exciting means for blockchain startups to quickly and efficiently fund their projects in ways that wouldn’t have been possible with more traditional fundraising efforts. The problem is that the combination of new and often misunderstood technology with rapid capital gains will inevitably lead to greed, corruption, fraud, and a general slew of malfeasance. There is an undeniable need for standardization and some form of regulation in order for this industry to truly progress.

Since its inception, Bitcoin and cryptocurrency have struggled to overcome their unfavorable association with illegality and “Silk Road” stylings. The onset of ICO scams have only dug this sour reputation hole deeper. The abundance of bad actors in the crypto space has led to practically all major advertising platforms placing a ban on blockchain or crypto-related ads or promotions. And the SEC is officially making major moves toward reigning in and regulating the soon-to-be-former “wild west of cryptocurrency”.

Toward True Transparency and Away from Hypocrisy

One of the key features of decentralized blockchain applications is their ability to provide transparency to all participants in the system. While this type of distributed visibility is inherent to most of these applications, the same cannot be said for the companies involved with their creation. There has been a hypocritical lack of transparency surrounding an unfortunate majority of ICO projects in the past few years. Even completely legitimate ICO projects have gotten away with releasing an unprecedentedly minimal (if any) amount of information about their business when considering the astonishing sums of money they have raised.

By transitioning from an ICO to an STO, we aim to be at the forefront of this ongoing industry-wide regulatory transformation. We want to ensure that investing in SupplyBloc is as secure, stable, and transparent as possible. Becoming SEC compliant through our issuance of a security token is the first step we’re taking toward being at the forefront of this new era within the cryptocurrency and blockchain communities.

Security Tokens vs Utility Tokens

The primary difference between a security token and a standard utility token is that the former is tied to a tangible asset. This makes security tokens similar to traditional financial securities in that there is some form of inherent profit or revenue-backed value to the offerings. There are also certain forms of SEC regulatory compliance directly tied to security tokens that bolster their legitimacy and effectiveness.

As it stands, STOs are being issued using Reg A+, Reg D 506(c), Reg CF, or full SEC registration. That means that that these tokens either use the available regulatory exemptions offered by the SEC or register fully as a financial security. And so the exact format of an STO largely depends on the amount of money being raised and the different ways in which investors are protected. You can learn more about the differences between Reg A+, Reg D 506(c), Reg CF, and full registration here.

To be sure, a security token can also function as a utility within a system. Therefore, any blockchain startups currently formatting their platforms or applications with utility token integration in mind can rest easy knowing that their plans do not require any fundamental transformations. All that changes with an STO or security token offering is the compliance with SEC regulation, primarily with regard to the ways in which capital is raised.

With an ICO, prospective “purchasers” of a token can easily sign up online, transfer money from their respective cryptocurrency wallets, and receive tokens almost anonymously and with practically zero mandatory regulation or standardization. On the other hand, an STO requires that actual investors sign up using SEC compliant Know Your Customer (KYC) and Anti-Money Laundering documentation. This ensures that all initial investors are either accredited or at least registered via the appropriate channels.

An investor that purchases security tokens through an STO is protected by SEC regulatory standards. That means that if the project fails and is subsequently liquidated, these investors will be repaid (as much as possible) rather than left completely stranded (as is often the case in the current realm of ICOs). The security token must be backed by a tangible asset such as the company’s revenue or profits, and so there is actually inherent value embedded within the offering.

What are the benefits of STOs and increased regulation?

STOs provide dual benefits for the projects issuing the tokens and the investors funding them. By complying with SEC regulations, a precedent of legality, stability, and security is set that acts as a protection from fraud, legal repercussions, and other potentially harmful activities for all parties involved. While ICOs are undeniably exciting and “easy”, the newer and more enduring STO is the undeniable mature progression from the current free-for-all state of affairs. And as this industry matures, larger, well-established investors will quickly start to feel more comfortable entering this space, leading to serious growth in the near future.

Where/How Can I Buy and Trade Security Tokens?

Security tokens are currently being listed on exchanges specifically built to be SEC compliant. These exchanges are essentially a hybrid between traditional online stock brokers and cryptocurrency trading platforms. Some notable exchanges include tZero, Orderbook, and OpenFinance Network.

Non-accredited investors can trade security tokens on these platforms in the same way that stocks are traded on traditional exchanges. For those that are used to using the currently popular utility token exchanges, the entire process is fairly similar. The biggest difference lies in the initial purchasing of the tokens via the actual STO.

The openness of an STO to the public is dependent on which type of SEC compliance standards are used. For example, if an STO uses Reg D 506(c), then the initial token purchases are only open to accredited investors. Still, certain regulations allow for anyone to register as an initial investor.

SupplyBloc Security Token Offering of SUPX

SupplyBloc is currently in the process of filing for SEC registration in order to sell our SUPX token as a security. We’re very excited about the prospect of partnering with accredited investors throughout the U.S. and internationally while fostering an investment environment of complete transparency, security, and stability. Stay tuned for more updates, specific launch date details, and more from SupplyBloc Technology.

To learn more, visit supplybloc.io