Securities Token Offerings Becoming a New Trend, Subject to Securities Regulations But Attracting Investors
Initial coin offerings (ICO) were born, based on blockchain technology, which not only provided enterprises with new financing channels but also established a community economy. However, ICO lacked supervision and added cryptocurrency. The market was booming last year, and many people tried to use the ICO to fish in troubled waters, which naturally attracted the attention of regulators and even prohibited any ICO activities. After a period of low rise and fall, investors have turned their attention to another emerging financing method, the Securities Token Offering (STO).
STOs suddenly caught the attention of the market, stemming from investors’ distrust of ICO project. Although the ICO’s financing scale has exceeded $12 billion USD since the beginning of the year, the market’s circulation activity has fallen by 90%. According to the research firm Satis Group, nearly 80% of ICOs were fraudulent activities last year, causing investors to suffer losses. Currently, countries lack control over ICOs, and investors gradually lose confidence and seek safer solutions. Therefore, STOs have emerged.
Similar to ICOs, STOs still raises funds through the issuance of tokens, but the latter is a kind of securities. The tokens are supported by real assets (or as collateral), including property, company profits, and income. Investors who hold a Security Token, in addition to being able to trade tokens, also enjoy voting rights, so-called “dividends” or even income dividends, just like buying stocks.
In theory, security tokens are also regulated by KYC (Know Your Customer) and anti-money laundering (AML) legislation, which means that both investors and buyers must disclose information; the STO party must register with the Alternative Trading System (ATS) and comply with broker and dealer regulations, including the company address, members and financial status, to determine the authenticity of the information. Therefore, in a sense, STOs can be called a legal, regulated ICO, or even an initial public offering (IPO) concept close to the stock market.
When it comes to the advantages of STOs, I believe that it is applied at the property level. In March of this year, the Praetorian Group of the United States cooperated with real estate developers to become the first STO company to launch a cryptocurrency real estate investment platform using Paxos Stablecoin (PAX) as a trading medium, and raised $65 million USD of capital, subject to the US Securities and Exchange Commission (SEC) regulation.
At the same time, STOs are able to transfer assets that were difficult to circulate in the traditional market, which can help assets to release value. Some experts estimate that the market valuation of STOs will reach $11 trillion USD, and the resulting assets will be tokenized, from small art to large commercial buildings. In the future, there will be opportunities for the general public to jointly own through STOs. Unlocking the value of idle assets may also lead to more investment opportunities.
In the past, when companies had to raise funds for listing, they had to apply to regulators. Through traditional brokers, traditional listing methods took longer. Today, STOs provides a faster way for start-up SMEs to raise funds for the company, and investors receive more protection than ICOs.
Thanks to the blockchain technology, STOs can directly link the two parties, eliminating the role of the intermediary in the process; from the completion of the transaction to the settlement stage. Processing that took a few days is greatly reduced to minutes and seconds. STOs also simplify the verification process and lessen the cost of fundraising. Therefore, the market has regarded STOs as the next wave of blockchain and cryptocurrency markets and can attract traditional investors to enter the market and accelerate the development of the industry.