STOs: The Compliant ICO

2017 was the year that launched a frenzy of ICO activity as many new alt-coins attempted to get in on the action and capture the attention of retail investors wanted to discover alternative investments in the crypto space. Most of these utility tokens would have struggled to get off the ground last year had they attempted to comply with complicated and expensive KYC (Know Your Customer) and AML (Anti-Money Laundering) compliance, so they positioned themselves as utility tokens to avoid being subjected to federal securities laws.

Fast forward to 2018 and an entirely new class of token, the Security Token, looks to offer an alternative to utility tokens like Bitcoin and other alt-coins. This new, compliant class ICO, will give Wall Street and other institutional investment a fully compliant investment option in the blockchain/cryptocurrency marketplace. Security Tokens have massive potential to disrupt equity and ownership in the same manner that Bitcoin did for currency.

Difference between ICOs and STOs

ICOs offer utility tokens without distinguishing a class to avoid scrutiny and compliance by regulatory agencies including the SEC. Bitcoin and Ethereum are utility tokens. These are products that give you access to their protocol and your token is not backed by any kind of asset. STOs do not attempt to bypass or avoid expensive and complex compliance protocols. This method fully embraces the idea that these security tokens are digital assets and subject to all appropriate regulatory compliance. STOs must follow the same registration path as a traditional IPO. There are numerous platforms that offer end-to-end services to allow organizations to tokenize assets and numerous platforms to trade security tokens that are due to be completed in the coming months.

STO Platforms: Securitize, Templum , Open Finance, tZero, TrustToken

Any asset can become tokenized and represent real ownership in an actual real asset. These could be shares of stock in a private company, real estate, or commodities. For this reason STOs have the potential to be highly disruptive to traditional financial and ownership models. Venture capital, hedge, or equity funds could utilize security tokens to offer liquidity to investors. Any company would be able to offer equity, debt, or pay dividends. As of 2014, the US had $269 trillion in assets that are ripe for disruption by security tokens. The market cap for STOs is projected to exceed $10 trillion as soon as 2020.

What advantages do Security Tokens have over traditional securities?

They are highly accessible. Anyone with an internet connection or a mobile phone would potentially be able to begin to participate in the purchase of security tokens on a global basis. There are over 3 billion people in third world countries who do not have access to a physical bank. Many of these people are already using cryptocurrencies via their cell phones. In the coming decade almost half of the world’s population could be in a position to begin purchasing assets for the first time ever through security tokens.

Efficiency is also greatly increased across the board utilizing a security token compared to a traditional investment instrument that is backed by an asset. Blockchain technology would eliminate many layers of middlemen in almost all transactions. Smart contracts would also create more automation as well that would mean lower fees and faster execution of transaction of all kinds.

This loss of revenue for institutions would be offset by being able to reach a larger investor base as mentioned above. There would also be less potential for market manipulation at an institutional level which would increase investor confidence that they everyone is on a level playing field with all investors, large and small.

Most of Wall Street took a wait and see approach to cryptocurrencies and ICOs in 2017 due to uncertainty about how regulatory agencies such as the SEC were going to treat utility tokens. ICO’s still appear to have a place for organizations that are looking to mobilize and raise money around a large base of engaged users such as the Telegram ICO<(link to Telegram article> but do not want or need to go down the road of full compliance. A properly executed STO will be SEC-compliant and allow security tokens to become more accessible to the masses.

2017 was the year frenzy of new ICO activity as many new alt-coins attempted to get in on the action and capture the attention of retail investors who were looking for alternative investments in the crypto spce. Most of these utility tokens would have struggled to get off the ground last year had they attempted to comply with complicated and expensive KYC (Know Your Customer) and AML (Anti-Money Laundering) compliance, so they positioned themselves as utility tokens to avoid being subjected to federal securities laws.

Fast forward to 2018 and an entirely new class of token, the Security Token, looks to offer an alternative to utility tokens. This new, compliant class ICO,will give Wall Street and other institutional investment a fully compliant investment option in the blockchain/cryptocurrency marketplace. Security Tokens have potential to disrupt equity and ownership in the same manner that Bitcoin did for currency.

Difference between ICOs and STOs

ICOs offer utility tokens without distinguishing a class to avoid scrutiny and compliance by regulatory agencies including the SEC. Bitcoin and Ethereum are utility tokens. These are products that give you access to their protocol and your token is not backed by any kind of asset. STOs do not attempt to bypass or avoid expensive and complex compliance protocols. This method fully embraces the idea that these security tokens are digital assets and subject to all appropriate regulatory compliance. STOs must follow the same registration path as a traditional IPO. There are numerous platforms that offer end-to-end services to allow organizations to tokenize assets and numerous platforms to trade security tokens that are due to be completed in the coming months.

STO Platforms: Securitize, Templum , Open Finance, tZero, TrustToken

Any asset can become tokenized and represent real ownership in an actual real asset. These could be shares of stock in a private company, real estate, or commodities. For this reason STOs have the potential to be highly disruptive to traditional financial and ownership models. Venture capital, hedge, or equity funds could utilize security tokens to offer liquidity to investors. Any company would be able to offer equity, debt, or pay dividends. As of 2014, the US had $269 trillion in assets that are ripe for disruption by security tokens. The market cap for STOs is projected to exceed $10 trillion as soon as 2020.

What advantages do Security Tokens have over traditional securities?

They are highly accessible. Anyone with an internet connection or a mobile phone would potentially be able to begin to participate in the purchase of security tokens on a global basis. There are over 3 billion people in third world countries who do not have access to a physical bank. Many of these people are already using cryptocurrencies via their cell phones. In the coming decade almost half of the world’s population could be in a position to begin purchasing assets for the first time ever through security tokens.

Efficiency is also greatly increased across the board utilizing a security token compared to a traditional investment instrument that is backed by an asset. Blockchain technology would eliminate many layers of middlemen in almost all transactions. Smart contracts would also create more automation as well that would mean lower fees and faster execution of transaction of all kinds.

This loss of revenue for institutions would be offset by being able to reach a larger investor base as mentioned above. There would also be less potential for market manipulation at an institutional level which would increase investor confidence that they everyone is on a level playing field with all investors, large and small.

Most of Wall Street took a wait and see approach to cryptocurrencies and ICOs in 2017 due to uncertainty about how regulatory agencies such as the SEC were going to treat utility tokens. ICO’s still appear to have a place for organizations that are looking to mobilize and raise money around a large base of engaged users such as the Telegram ICO<(link to Telegram article> but do not want or need to go down the road of full compliance. A properly executed STO will be SEC-compliant and allow security tokens to become more accessible to the masses.