Blockchain has provided all the necessary tools for creating tokens for projects or entrepreneurial ideas, giving people what they have long needed. Thousands of startups and projects create tokens on the blockchain and sell them to raise funds for product development, business management and marketing.
In 2017 the ICO has raised nearly $7 billion, and some projects have collected $250 million each. The draft EOS for nearly a year managed to collect more than $1.4 billion In 2018 in the ICO has raised nearly $8 billion.
It’s hard to argue with success and efficiency of the ICO. However, there was a better way of raising funds on the blockchain — Security Token Offering (STO).
STO is a lot like ICO. In the framework of the STO on the blockchain tokens are created, which are then offered for sale to raise funds for the development, marketing and management.
The main difference lies in what properties are tokens and which functions they perform.
The ICO uses practical tokens (utility tokens). This name implies that the tokens need to do something for their owners to serve them. Practical tokens not pay dividends or share of the future income of the project.
Instead, their owners get access to services on the platform after its launch. In many cases, owners can also use these tokens to pay for gas or commissions for transcale.
The owners of token-ICO often don’t know much about the project, and despite the fact that they invest in the team, not investors in the traditional sense of the word.
However, tokens in the ICO don’t accidentally have practical properties, and not properties of securities. At the dawn of the emergence of the ICO project managers and developers understand that their tokens are not supposed to have anything to do with securities, not to compete in the market shares of companies.
Otherwise their projects would be subject to the laws and regulations of issue of shares. Before you put the tokens on sale, they also had to obtain the approval of bodies such as the Commission on securities and exchange Commission (SEC). And it is complex, costly and restrictive process.
Of course, many of crypto currency exchange decided not to include in your list of tokens that have any properties securities. All this is done in order to avoid problems with regulators.
However, selling practical tokens on the blockchain has created the risk of a Scam and hampered the process of choice for investors. If investors are deceived, they have no legal protection, as ICO still do not fall under existing laws and regulations.
However, regulators around the world show great interest to the ICO and the blockchain industry as a whole. But the blockchain projects will be able to enjoy the freedom only a limited amount of time. Sooner or later this industry will get under control one way or another.
And enterprising industry participants came up with STO.
Tokens that are created and sold under the STO, are securities and act as traditional stocks. Their owners are entitled to a share of the profits and a voice in the decision-making process.
Before you can create sentences with these tokens, you must obtain the approval of the regulatory authorities using the same rules as for the issue of shares. This process includes all required payments and provision of data to the relevant authorities.
In October 2018 the company St. Regis Aspen Resort in Colorado (USA) was one of the first firms to raise funds in this way. STO was held on the platform Indiegogo and raised $18 million
Model STO in many aspects is still at a very early stage of development. It is used by only some companies. However, its nature and measures for the protection of investors, and STO might be more popular than ICO, in the next few months or years.
Does this mean that the ICO will hand over their positions?
Not really. Sometimes ICO is the perfect way to raise funds for the project. A good example is a decentralized project or the project open source. In this case, the creators of the project will face difficulties when issuing tokens as shares, because they have no company and they cannot meet most of the requirements of the regulatory authorities.