In a recent article via BBN Times, Jerry Floros highlighted how regulatory clarity will ultimately shift Initial Coin Offerings (ICOs) to Security Token Offerings (STOs). Despite the current state of differing jurisdiction-based compliance, Floros says the regulatory safety found in security tokens is even likely to bring institutional investors onto the cryptocurrency scene.
The Shift from ICO to STO Explained
Institutional investors, to include hedge funds, mutual funds, REITs, and investment advisors are slowly entering the cryptocurrency space.
The reasoning, says Jerry Floros, is due to increased regulations. The ultimate result will entail exponential growth for the security token industry within the next three years. The following explains why.
The 2017 ICO-phase has come and gone. The days of crowdfunding based on a 30 page white paper and no MVP have disappeared. In fact, more than 90% of all ‘utility tokens’ are now worth less than their cost at initial offering.
Floros says there has been a significant shift from the 2017 ‘crowd’ investor system to a more professional approach which involves institutional investors. The reason, he says, is the added regulation thanks to security tokens.
“With FINMA of Switzerland taking the lead, closely followed by Lichtenstein, Estonia, Malta, Gibraltar and Singapore, ICO as well as crypto regulation are slowly taking form and it’s only a matter of time before coins and tokens will be considered securities or financial instruments and subject to regulatory oversight and securities laws.”
Much of what Floros suggests is correct, though regulatory compliance varies throughout the world. In the United States— the global leader of financial securities— the Securities and Exchange Commission (SEC) has implied that virtually all ICOs and cryptocurrencies constitute financial securities.
The situation has resulted in recent SEC enforcement of ICO and cryptocurrency exchange-related securities violations.
Two subsequent responses have transpired.
How Regulatory Bodies Have Responded to the Security Token Industry
Regulatory bodies outside of the US have initiated new legislation to provide security token hotbeds, such as Malta for example.
In the US however, security tokens have emerged, which aim to adhere to the SEC’s existing securities laws while also offering significant benefits to both businesses— who wish to raise private capital— and investors.
As companies shift from ICO to STO, many claim that the STO will prevail as the sole winner in due time. Others believe that the STO is so powerful, it will go on to replace the Initial Public Offering (IPO).
Regardless of the final state of STOs, Floros is confident that their regulatory clarity will bring serious investors into the space. Once that happens, security tokens— he says— have unlimited potential.
“…security tokens will be the driver for the exponential growth of security token offerings when institutional-grade investing gradually enters this space. At that point in time, only the sky will be the limit for security tokens.”
What do you think of the future for security tokens? Will the capital markets industry experience serious disruption from the benefits offered through compliant tokenization? Let us know what you think in the comments below.
Image courtesy of BBN Times.