The crypto space continues to evolve, and projects are now keen to introduce their functionality to retail investors via security tokens. These tokens act as an evolution of crowd funding efforts where developers approach the public to fund their projects and issue tokens without the need for traditional third parties.
These crowdfunding projects are commonly known as Initial Coin Offerings (ICOs). Statistics indicate that $5.5 billion was generated by just 300 ICO projects in 2017. This year, the number of listed ICOs has reduced to almost 200 but, the funds raised have heightened to $6.3 billion.
The Definition of a Security Token
Security tokens can be defined as virtual contracts for percentages of valued assets like Real Estate, Cars, or even Art. Security token is also about equity of start-ups. They can also be demarcated as virtual contracts for financial securities.
Unlike traditional ICOs that issue “utility” tokens or coins, security tokens act in direct collaboration with regulatory agencies. Although this has historically restricted the availability of security tokens on the crypto market, we strongly believe that security tokens are the crypto industry’s next boom.
Security tokens presently account for a very small portion of the whole crypto market. Allegedly, ICOs and crypto exchanges are dodging security token classification because of extra costs linked with regulatory submission.
At Bloomio, we strongly believe that the potential of tokenized ownership could soon lure businesses and retail stakeholders.
The Broad ICO Problem
Statistics show that many ICOs were fake and resulted in a theft of almost $2 billion last year. This issue accompanied with several crypto exchanges being hacked marred the trust investors had on funding new projects.
The popularity of ICOs drew the attention of regulators from all over the world. The reality that people were still ready to pour millions of dollars into ICOs without regulation did not go unchecked since the number of scams was likely to increase.
2018: The Year of Security Tokens
Governments all over the world acknowledged the fact that it was not possible to eradicate ICOs since they had taken deep roots worldwide, and there are indeed good advantages of ICOs, like the access to funds for start-ups and the possibility to invest for individuals. The only solution was to offer the basic infrastructure to enable customers to capitalize on the benefits of investing with security tokens; minus fraud.
With this measure in place, an entirely immersive security coin market could offer more liquidity, while eliminating back-office occupations with programmable equity.
Benefits of Security Tokens
The regulatory system that control security tokens is an exciting reason for the crypto users to invest minus the fear of being scammed. When purchasing security tokens, investors are only required to worry about the economic triumph of the project they are investing.
As regulators all over the world triple their investigations and enforcement strategies, start-ups that offer tokens in the right way will enjoy the serenity of not experience any business disruption from SEC enactment undertakings and private lawsuits stemming from unregistered security offerings.
The fractionalization of big digital properties is another advantage for investors to an initially limited market. The tokenization of assets facilitates ownership of small portions of a stock, car, or real estate. Initially, these were only accessible to affluent investors and those with the power to venture into long-term investments.
Security policies have been made and unceasingly polished for years. Security tokens will gain affluence of legal precedents, which will clarify token buyer privileges, protections, and prospects. Besides, they would illuminate the responsibilities and obligations of the issuer.
Likewise, firms providing security tokens will be more transparent with investors compared to those that offer utility tokens concerning token economics and how they plan to raise the value of their tokens.
Raising capital via security tokens will soon become a norm in the crypto world, and it will compel all cryptocurrency investors to reconsider the core value of utility tokens.