Initial Coin Offerings have danced in the spotlight of the blockchain and cryptocurrency space, taking center stage as the leading fundraising mechanism that has brought many blockchain projects to life. According to Coindesk, ICO’s in 2018 had generated a whopping $6.3 billion in funding. Almost $2.6 billion of this was raised in February alone. However a recent study prepared by ICO advisory firm Statis Group estimated that roughly 80% of them were poor quality projects that failed to fulfill their ambitious promises. Following the peak in May, there has been a continuous decline in funds and capital raised through ICOs.
The Demise of the ICO
The success rate of these projects also continues to decline, reaching a mere 29% in September 2018. The loss of interest by the general public and mainstream media is yet another telling sign that the tide is turning. What could be the reason for all of this? Some of this can be attributed to the natural evolution of the industry, a persistent bear market, and of course, the SEC stepping in and redefining regulations surrounding ICOs. And why wouldn’t they intervene? An ICO is essentially a pre-sale of tokens that promise to have great utility someday.
After all the hype and billions in funding lost to failed projects, empty promises aren't good enough anymore. There was a need for significant changes around the structure, rules, and expectations of launching an ICO. The era of unregulated ICO’s are finally coming to an end. And let’s be real. It’s about time.
There’s something better on the horizon right now. As Harvey Dent would say: “The night is darkest before the dawn.” After the SEC’s decision to better define and regulate ICO’s ( the majority of whom they considered be securities) in the modern day economy, STOs have stepped in to save the day. The question on everyone’s minds is: are STOs the future of fundraising in the cryptocurrency space or just another fad?
The Rise of the STO
STO stands for Security Token Offering. The Security Token Network states that these tokens are underpinned by real-world assets, such as equity in a company, ownership, commercial real estate, profits, dividends, and debt to name a few. Counter to cryptocurrencies which are largely backed by market sentiment, security tokens offer investors concrete financial rights similar to what you see in the traditional stock market.
STOs help manage the needs and expectations of all stakeholders (the crypto-fanatics and institutional investors alike) who will soon be able to enjoy greater accessibility, visibility, and accountability and–get ready for it–blockchain-powered-SEC-compliant cryptocurrency-priced projects.
Fun Fact: They can even allow for fractional ownership of even the most high value illiquid assets possible - take fine art or real estate as an example. The tokenization and successful funding raising of multi-million dollar Andy Warhol’s “14 Small Electric Chairs (1980) is one novel example of a successful use case which validated the tokenization of an asset using blockchain technology.
“We have tokenized the artwork by converting it into tamper-proof digital certificates or“fractions” based on the Ethereum network. Buyers then purchased fractions of 14 Small Electric Chairs with Bitcoin, Ethereum or the ART token. The auction was run entirely by a smart contract.”
If you have thought about launching a Security Token Offering, the next question on your mind is likely: How can I get started and how difficult is it?
This space is quickly evolving and regulations are still falling into place compared to launching an ICO. Due to the nature of STOs, they are not only more difficult to organize but require more time and administrative costs. However, launching an STO can provide your business with more advantages, stability, and long-term growth.
If you didn’t know already, there are high quality security token issuance platforms like Rocket 2.0, Harbour and Polymath that have already begun to evolve and adapt to support the growing Security Token market. Rocket 2.0 for example incorporates automated compliance software, so companies looking to enter the securities market can do so without worry. The platform can standardize contract terms for your region to ensure compliance every step of the way. Overall, STOs create a win-win-win situation that have the power to take the industry one step closer to mass adoption of the digital economy.
Author: Jass Binning