A New Wave of Capital — Part One
The Rise and Fall of ICOs
Over the past decade, an alternative way to crowdfund an organization called Initial Coin Offerings(ICOs) has become a popular choice for tech-savvy startups. The technology behind ICOs, a blockchain, is a programable-ledger or sorts, which enables assets to become digital through a process of becoming tokenized, essentially becoming programmable-money. With this innovation in modern finance, the use-cases of these tokenized offerings became as different and unique as the motivation for the person or group behind the listing.
The Decade of Crypto Assets
From its meager beginnings as an open-source project worth less than a penny to its notoriety as a disruptive method of fostering an emerging cryptocurrency economy which has risen as high as $400 bn in global market-cap, governments, and regulators have always been curious about this potentially new stream of taxable income. The early days of this type of crowdfunding had been very lucrative to the initial investors which were boasted by an all-time high of Bitcoin, the first blockchain currency to mature, to it its all-time high price of the $21,000 USD in early 2018 — most of which poured in the short 6 month period before the market apex.
As a bear market correction came shortly after this momentous event which setback the global market near $350,000,000 in the capital, it was becoming more apparent that many of these offerings were underregulated and outright misleading. Though many of the ICOs had done what they said they would with the funding; expand operations, hiring developers, conduct marketing, pay for legal research, there were many groups who took advantage of the DYI and sometimes anonymous nature which has always existed in the cryptocurrency community.
Unfortunately, during the sense of euphoria which had every-day people experiencing rapidly increasing returns on cryptocurrencies during the late half of 2017, some ICO issuers took their opportunity to cash-out their immense earnings without even attempting to fulfill its promise to the crowdfunding backers. When the dust had settled hundreds of millions of dollars would disappear with companies vanishing over-night once conducting an ICO, or draw the attention of regulators who considered the terms of their offering to merit intervention.
The Case for Tokenized Securities.
In this era of the post-historic rally which proved the viability of digital currencies and distributed ledger technologies(DLT) as a form of programmable-equity serving both utility and security functionality, the financial revolution Bitcoin inspired had come full circle. Once as a symbol of open opposition with an anonymous creator, the cryptocurrency market has evolved, now having a desire for cooperating with friendly nations and embedding interoperability with various regulatory bodies into the tokenized code of the asset. The industry is recognizing the need for self-regulation, auditing, and oversite which a DLT like blockchain can allow; but at its very core, this notion challenges the basic ideas of the p2p decentralized economic movement and sparks widespread debate.
The heart of the debate really focuses on use-case and user-base. Most technology-savvy investors and regulators who investigated the differences these offering types typically agree that there are 5 types of Cryptocurrencies; Utility, Currency, Equity, Debt, and Security Tokens. For our purposes, we will also evaluate using this model and focusing on the 3 suitable for regulated investment mechanisms which qualify as a security.
Mainstream investors often label cryptocurrencies as too volatile due to the lack of intrinsic value in the tokens being issued. This may be the case for currency and utility tokens but certainly not the case of equity-based crowdfunded tokens which represent both ownership and value of an asset.
Security tokens are, after all, actual financial securities, meaning your tokens are backed by tangibles like the revenue, assets, and profits of a company. Just like stocks they can be traded on exchanges
There will soon be a merging of centralized and bureaucratically downtrodden assets with more secure, liquid, and transparent tokenized assets on blockchains.
A quick rundown of how the crypto asset marketplace has become a diverse ecosystem of digital analogs to real-world stores of wealth, stock, and securities is partially due to entrepreneurs like Roger Ver, who was one of the first online retailers to accept Bitcoin it as payment around 2013. Until then Bitcoin had a sorted history as an anonymous payment method on underground websites. Again, bad-actors had behaved in ways which resulted in millions in Bitcoin seized and auctioned off by governments such as the U.S.
Bitcoin’s creator, Satoshi Nakamoto is still unknown despite years of intense scrutiny and investigation by investors, regulators, an law-enforcement officials around the world who initially thought that Satoshi was somehow behind the illegal activity conducted on the Bitcoin blockchain. To make it more of a regulatory nightmare for the traditional accountant and IT department, unlike a financial transaction network or clearinghouse, Blockchain assets are generated distributed globally by a community who voluntarily run the financial network, their computing power used for the resolution of a financial transaction and provides the backbone and value and service of the economy, not the banks.
Bitcoin was just the forebearer to the disruptive potential of cryptocurrencies and had several drawbacks to widespread adaptation. What Bitcoin did allow through its adaptation was a reliable means of purchasing a digital currency which could be transported from one merchant or vendor to another as a means of exchange. The progression of tokenized goods and services began to grow through these use-cases of p2p financial services and the accessibility to easily convert back-and-forth cryptocurrency through fiat currencies such as USD.
Utility Vs. Security
Think about it this way, have you ever flown into an airport and seen one of those currency exchange booths? With tokenized assets like Bitcoin, digital funds could be acquired regardless of borders. In 2008 when Bitcoin was conceived, the infrastructure was not in place to make the transfer of cryptocurrency easily accessible, nor was one BTC anywhere close to analog a stable currency such as USD. The result is that the price could be drastically different by the time you landed in your destination and when you depart. Because tokenized assets are programmable, they can easily interact with other assets, financial services, and mobile banking apps so this problem was easily overcome with the maturity of the technology.
Today there are several alternatives to standing in line after going through customs and exchanging your native currency into a local one thanks to the innovation that early tokenized assets such as Bitcoin and Ethereum (ETH) adaptors have made to replace the need for international currency exchanges with a simple process of USD>BTC > EUR and EUR>ETH>USD.
BTC and ETH are two totally different blockchain currencies with unique characteristics and use-cases but through the use of a 3rd-party Cryptocurrency exchange actings as an Alternative Trading System(ATS) which handles the facilitating the tokenized transaction on the globally distributed blockchain ledger. With their creation comes the distinction of usage; are these tokens purely for a means of exchange or as a store of wealth, or do they serve some sort of utility?
In our next installment of this series, we will explore the difference between Utility Tokens and Security Tokens, and how the securities issued on TaoDust raise the bar of excellence for equity crowdfunding.
More Information
For the latest events from the TaoDust platform, please follow our blog.
To learn more about the TaoDust tokenized crowdfunding platform please visit our website.
If you wish to chat with the team about your questions please visit our telegram channel
For general updates about the platform, please follow us on Twitter.
Press and partnership request email info@taodust.com
