V SYSTEMS is offering token publish support to security token
Doesn’t matter if you’re fully immersed in the blockchain circle, or just starting your research on the industry, it’s likely that you’ve come across the latest hot term in the space — security token offering, otherwise known as STO.
There is a plethora of resources out there detailing what STO and its surrounding terminologies like security token mean. But let’s have a quick summary on them to refresh your memories, or, bring you up to date if you’re new to the game.
What are security tokens?
In general, tokens in the blockchain space can be loosely divided into two categories — utility tokens and security tokens. A utility token refers to a token that provides the holder a product or service (hence the utility value), for instance, the right to use a network.
A security token, on another hand, is a token that bears the quality of actual financial securities, by which one of the more common determining factors is the Howey Test put in place by the U.S. Supreme Court. The Howey case in 1946 resulted in a conclusion that a contract, transaction, or scheme is considered a form of security when “a person invests his money in a common enterprise and is led to expect profits solely from the efforts of the promoter or a third party”. So as long as a token meets the specification in the case, it is considered a security token.
This leads naturally to the concept of security token offering (STO). Unlike ICOs where the ultimate goal (to raise funds) sometimes remains unspoken or blurred by the utility aspect, STOs make it clear that the token you’re getting is an investment/share in the company. By falling into the securities category under the U.S. Securities and Exchange Commission, STOs are opening themselves up to a more regulated environment, and therefore bringing an extra layer of safety and legitimacy amid the rising ICO scams.
security token market is showing early signs of the ICO boom
The number of security tokens is on the rise, with many of them successfully raising a large sum of funds, such as Andra Capital (US $1 billion), and tZero (US $134 million). As the line between ICO and security token becomes clearer, more and more projects are likely to market themselves under the name of “STO”, which gives investors a higher sense of security and trust due to the stringent regulations.
While there is no actual number on STO yet, we can always refer to the statistics on ICO due to the many similarities. According to CoinDesk, the all-time accumulative ICO funding has already surpassed US $22 billion in October 2018. We are also seeing a staggering increase in the number of ICOs between 2017 and 2018.
If the rise of ICO was any indication, STO is very likely to experience a boom with a similar scale, if not more massive.
Blockchain players are helping with the publishing of security tokens
As the popularity of STO and security tokens grows, blockchain players are competing to help with companies that are looking into this new option of fundraising. Ethereum and EOS, for instance, have already developed protocols that support the issuance of security tokens. No doubt the market will continue to expand, and more tools and channels are needed to facilitate the growth.
Introducing split/reverse split function for security tokens by V SYSTEMS
At V SYSTEMS, we are thinking beyond simply making the token issuing process faster and cheaper. In our upcoming release, not only are we launching the smart contract, we are also introducing an advanced token publishing function that brings the world’s first of its kind to support security token issuance and STO.
In our opinion, mimicking traditional financial securities as much as possible is an effective way to remove the entry barrier and accelerate the adoption of security tokens. And one of the features that’s currently missing in security tokens is the split and reverse split function seen in the stock market.
This is a very crucial feature because of the importance of liquidity in the token industry. Token price has often been perceived as an indicator to the success and prospect of a venture. If the price remains low, it will unavoidably create a negative impression on the project. People will not be interested in investing, which then further drives the token price down. A vicious cycle will be created. Eventually, exchanges will delist the token because of the drop in value and lack of interest from the community.
But with a reverse split function, when the token price is low and the token is on the verge of being delisted from exchanges, the issuer can combine the tokens to elevate the token price. This helps to ensure the token price requirement for an exchange is still being met. There is also a chance that the positive impression followed by the token price increase will encourage investment, and drive the liquidity back up.
A security token is essentially a digital replacement of traditional financial securities. Existing features of stock should be considered when developing a token publishing function to achieve its duty as securities.
The split and reverse split functionality is just the first of many highlights of our mainnet, more updates will be unveiled in the upcoming months.
