Security Token Offering — Will STOs establish themselves in the future?

Will Security Token Offerings follow ICOs? Security Tokens could replace Initial Coin Offerings, which boomed especially last year. ICOs were called the new alternative to crowdfunding, especially for startups. Nevertheless, the concept had weaknesses especially in the area of security.

Security Token Offerings (STO) now addresses these weaknesses with comprehensive regulations and real assets.

The end of an era

In 2017 they were still very much in line with the trend: ICOs. Initial Coin Offerings were advertised as a new type of crowdfunding. Particularly for startups and fintech projects were cryptocurrencies used, to finance their own projects. Tokens are crypto currencies that are mostly based on the ERC20 standard from Ethereum.

With ICOs, companies and projects can offer cryptocurrencies for sale, so that the initiators can use the generated money from these sales to finance their own projects. In 2017 was it possible for many blockchain projects to achieve a soft cap of up to 30 million dollars without any problems. An ICO bubble threatened to inflate, especially as more and more scam projects penetrated this market.

Sometimes it seemed as if they only needed to offer a token for sale and investors were ripping for it. Nowadays, requirements have increased, investors are taking a closer look at the white paper and investments in ICOs have decreased. Scams or just bad projects hardly stand a chance. And that’s a good thing. However, investments in ICOs have fallen by around 90 percent, so it seems that the bubble is popped.

Even promising blockchain projects have difficulties in selling their cryptocurrency. At the same time, marketing costs are also rising. And more and more regulations are threatening ICOs. Some startups currently prefer to work without an ICO or wait for an alternative to be developed.

The security token offering could give crowdfunding a new boost with tokens.

What is a Security Token Offering?

Security Token Offerings are based on the idea of ICOs. STOs also offer a token for sale in order to finance a project. The difference lies in the nature of the cryptocurrency. With ICOs, utility tokens are usually offered for sale. They have one or more purposes on the respective platform of the project.

For example, they can be used to pay for services on the platform, or it is possible to get certain discounts with them. Investors hope that the cryptocurrency will increase in value over time if the project is successful. Or they want to use the platform themselves.

A security token is of a different nature. As the name suggests, it offers a certain security. While the normal utility token merely provides a promise that it may be useful or valuable in the future, the security token is covered by an asset and behaves similarly to a security. It is directly linked to profit or revenue promises and can be compared to a stock in this function.

With a security token, you directly acquire a stake in the company’s assets. It is important that there is a tradable value behind it, which resembles that of a normal financial product. It is also called an asset token because of the asset it tokens. Since it stands for tradable assets, the securities regulations also apply to it.

If these regulations are not observed, the company must pay expensive penalties. In order to be classified as an asset token, the cryptocurrency must give the owner a share in the company, represent a cash investment and be linked to certain sales promises.

Ultimately, the Howey-test decides whether the digital good is classified as such. The Howey-test comes from the US Supreme Court. It was created in 1946 to determine whether certain transactions were investment contracts within the meaning of the Securities Act and the Exchange Act.

Advantages

For security tokens, some of the advantages from utility tokens issued at ICOs and cryptocurrencies in general apply. They also eliminate the intermediary between buyer and seller. As a result, the fees for transactions are much lower, which is reflected in the price for the buyers.

This effect is reinforced by smart contracts, because they make people like lawyers hardly needed. Transactions are fast thanks to the blockchain, because cryptocurrencies are sent peer-to-peer, an intermediary is not needed. Assets can easily be tokenized and quickly traded across the blockchain.

This trade is usually concluded via free markets on the Internet. All you need to trade assets is an Internet connection. This also increases the investor base.

The advantages over ICOs are regulation and security. With a Security Token Offering, real assets are traded instead of possibly empty promises. This does not guarantee that every investment will generate returns. However, this reduces the likelihood of becoming a victim to a scam.

Scam ICOs usually result from the fact that it is not possible to determine whether the project behind the scam is credible. In addition, there is no protection for investors in the event of fraud. Security tokens on the other hand, are regulated, supervised and covered by assets.

They do not circumvent any regulations, unlike initial coin offerings, but ignore the middleman, which is why they are faster and cheaper.

Disadvantages

By eliminating the intermediary, the responsibility for the transactions is passed on to the buyers and sellers. Initiators of security token offerings must take care of compliance with the rules, marketing and transactions themselves.

Compared to ICOs, the initiators also incur more costs by complying with the guidelines and possibly having to deal with the authorities. This also slows down the process of creating a coin offering. At the same time, they cannot be converted into utility tokens, which makes them less flexible.

However, the advantages outweigh and make the security soken offering a better choice. Platforms that specialize in STOs are already developing.

Conclusion security token offering

The practice of security token offerings will probably almost completely replace ICOs. Perhaps not completely, but STOs simply offer much more security, which was painfully missed by ICOs and led to many disappointed investors.

The new platforms like Polymath will contribute to the spread of security tokens and could lead to a similar boom as Ethereum did a year ago. They could possibly even become a competitor for classic shares.

How MarketPeak can help you decide whether a STO is scam or not

MarketPeak is an investment platform for fintech projects and products that offer rewards to the community. In order to achieve this in the best possible way, projects are offered to investors in the early stages (private sale, presale) such as ICOs and STOs. All projects that are gonna be listed are checked with certain requirements and backgrounds. We have a great pool of expertise and experience regarding ICO/STO rating so that we only list the best possible projects and offer them to our community. Existing products & services will be tokenized and offered at special conditions to the MarketPeak Community. MarketPeak also aims to decentralize the platform itself in the future.

Key Features:

• One-time KYC for all projects
• Early entrance in projects at the stage of private sale (ICOs/STOs)
• Quality control of projects published on the platform
• Maximum discount for registered users
• Audit and legal compliance of all listed projects
• Referral bonuses and remunerations for investors

Features of the MarketPeak Platform:

• Easy Usability
• & Responsive Design
• Best conditions
• Safe & Secure
• Personal Education &
• Easy Communication

A global digital platform with organic reach offers an infrastructure and sufficient number of active members to allow fundraising projects and products to benefit from economies of scale. Focussing to deliver the best marketing, good education and strong projects & products reviews for Buyers, Investors and Affiliates.