Can security tokens boost credibility of the crypto industry?
Despite the growing adoption of blockchain and cryptocurrencies by traditional verticals, such as banking, healthcare, and the governmental sector, the global community is still concerned with the risks associated with crypto. The general perception of the crypto space as a haven for scam, money laundering and fraudulent transactions deeply affects market growth and holds back the industry development.
For instance, Canada’s Better Business Bureau reports that ICO scams resulted in over $1.7 million CAD of losses in 2017. However, the Bureau admits this figure may be highly inaccurate. Experts believe that only five percent of assumed victims did report the financial scheme they fell prey to.
The hectic, unregulated 2017 witnessed hazardous investments with no or little understanding of risks and rewards that ICOs entailed. In part, it has to do with different notions of ROI from the investor and developer perspectives. ICO stakeholders should realize this model often implies fundraising at a very early stage — long before the product matures, which constitutes greater risks for participants.
On the other hand, the emergence of securities in the crypto world brings about traditional financial rules and maximizes legal protection. Decreasing the levels of uncertainty, STOs (security token offerings) are backed by tangible assets and subject to clear regulations.
Unlike utility tokens, securities enable companies to issue tokens that will be deemed as shares. Organizations like SEC reinforce new initiatives to make sure all parties involved in a STO remain duly remunerated and protected. STOs require licensing with the authorities and combine the features and guarantees of traditional assets with the benefits of blockchain.
Security tokens may be based on any physical asset without limitation. For instance, STO can make illiquid assets, such as real estate or fine arts, available to global investors who can purchase or trade these securities. The perk of STOs is the opportunity to govern the project and make decisions as any shareholder would.
At the crossroads of the crypto space and traditional markets, STOs develop trust to the blockchain-powered crypto industry, ensure fast and secure transactions, and direct payments with no financial or legal intermediaries involved.