Every month that passes creates a new record for the number of new Security Token Offerings (STOs) that launch per month. It appears that the recent boom to STOs is being fueled by the drastic plunge of the Initial Coin Offerings (ICOs) market. As more and more compliance issues surface for ICOs their investors have lost faith and are now pouring money into the much more accountable STO market.
After seeing over 1,000 different exit scams, extinct coins and ponzi schemes over the last year and a half it shouldn’t surprise anyone that governments are finally starting to step in. China has completely banned ICOs and the United States have implemented heavy regulations that mirror those of Initial Public Offerings (IPOs) in attempt to clear the bad name ICO’s currently carry. While the ICO circus seems to be over there is still a lot of cleaning up to do for the harm it has caused on the term ‘cryptocurrency.’
ICOs Still Building Businesses
So many people bought into ICOs because they actually do have a place in the market and offer a lot of good things to technology advancements. Collecting funding for the research development of blockchain technology and cryptocurrency paves the way for future high-tech advancements in society. Strict regulations had to be put in place to stabilize the market and ensure ICOs accomplish what they were designed to do.
The cryptocurrency market can now repair and build itself to be more powerful than ever before. Even with minimal investors and prices at all time lows the market can rebuild confidently knowing that those looking to flip a quick buck are long gone. This is where STOs come into the picture and why they are starting to really gain some serious steam in taking over the ICO model.
STOs Safer Than ICOs
When investing into an STO the buyer is essentially purchasing a percentage of the company’s real assets not just some promised future-use tokens like with ICOs. With an STO the company will have to tie these future-use tokens to actual shares in which they will pay dividends to shareholders. By offering actual company securities the STO strategy ensures investors that the startup will be held accountable for their fundraising actions.
Security is just as the name suggests with STOs since the tangible asset backed tokens are not going to lose value overnight or straight up disappear like with some ICO scams. STO’s are clear government related investments so they must be registered with the Securities and Exchange Commission (SEC) or use one of the registration exemptions.
SEC Exemptions For STOs
- Regulation Crowdfunding – All transactions must take place online through an SEC-registered broker-dealer. Company cannot exceed $1.07million per year in crowdfunding offerings. Securities cannot be resold for 1 year.
- Regulation D 506(c) – Company can offer and sell securities to only accredited investors (anyone with $1million in assets or has an annual income of $200k+). The company must verify all investors are accredited before allowing participation in the STO which has no limit to the amount of money that can be raised. These purchased securities cannot be sold for at least 6 months.
- Regulation A+ – Similar to regulation crowdfunding in that offerings can be purchased by non-accredited and accredited investors. The annual limit for money raised is capped at $50million per year. This exemption differs from the other two in that there are no restrictions on reselling securities and all offerings must be approved by the SEC. As of now there are not any STOs approved for this exemption.
While both ICOs and STOs are important for continuing the expansion of blockchain technology there seems to be a strong shift towards the more secure option. Investors have finally got tired of the ICO rollercoaster and are finding profitable ways to get onboard the more legal and regulated STO train. Having returns that are based off how well a company does instead of the Bitcoin market price are now the go-to choice. STOs thrive while ICOs dive!
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