It’s 2019 and majority of us are aware what Initial Coin Offerings (ICOs) are. They grew popular in the financial industry the same way Bitcoin gained recognition. 2017 was the year ICOs enjoyed a drastic growth, with more than 1,500 of them raising a total of over $28 billion in the past two years.
It was a promising technique for start-ups and entrepreneurs to crowdfund their products, and a great investment opportunity for people who were willing to support these projects. However, the excitement factor that once surrounded the concept has gradually dissipated.
The brutal crypto bear market, along with other regulatory fiascos, followed by fraud, uncertainty and lack of trust has impaired ICO’s reputation, resulting in a rapid decline in the second half of 2018. Its downfall, however, has cleared the way for a new type of token offering, the Security Token Offering (STO).
STO shows immense potential and offers a viable alternative for companies to attract investors and raise funds. The emergence of such a method will potentially start a new market, which was previously inaccessible to firms associated with blockchain technology, because of the regulatory issues and unpredictability.
ICO Rumble and Crumble
ICOs were the outcome of an emerging industry still in its gestation stage. The dramatic increase in their usage can be owed to the exponential progress of digital currencies in 2017, and the spike in the applications of Blockchain technology. Similarly, in order to understand their downfall, it’s important to consider these factors, that ultimately led to a colossal failure in the crypto industry.
Since last year, it has been quite evident that Bitcoin has endured some serious drops in its market value. Moreover, it has gained the power to dictate the value of other digital currencies, as it remains the dominant contender in the crypto space. Thus, the slump in Bitcoin’s price pulled down other cryptocurrencies as well. Soon after, investing in ICOs was no longer considered a wise move. Plus, making such investments do not ensure investor security, tokens or promised returns.
As is the case with any emerging concept, the convenience of raising considerable amounts through ICO started attracting many investors, who had little knowledge of the technology. Furthermore, the instances of frauds and scams surged rapidly.
New Approach to Token Offering
STO allows a business to make offerings to the public, and investors to purchase a security that is represented by a token. It is an alternative process for projects to launch a token offering in compliance with the legislation of different jurisdictions.
This approach is a nascent idea, along with the technology supporting it, and how it makes its way into the market is hard to predict. A plus point is that many jurisdictions have already developed regulations on selling securities, which are compatible with the current framework.
As the market grows, it is likely that security tokens will attract more investors. These tokens are believed to offer better protection and control than ICOs.
The introduction of STO promises the emergence of a new market in a regulatory order. The issues associated with the regulations dissuades many organizations from investing in the blockchain technology. Security tokens will provide the required regulatory framework and also encourage companies to invest in the emerging technology.