In any market, there are bound to be two things- greed and fear. It’s the same even in the cryptocurrency market. After the explosion in cryptocurrency prices and ICOs last year there is a lot of fear in the market right now as reality sets in. Many ICOs are not able to raise money purely through ICOs as in the past and have looked at raising money by offering equity. More investors are becoming more skeptical of ICO projects, which I will argue is actually good for the space in general.
One thing that many people are starting to realize is that utility tokens offered in ICOs usually do not have assets that back them. With that comes the emergence of STOs (Security Token Offerings). What are STOs, what can we expect from them and are they the future? Will be sharing my thoughts in this article.
What are Security Tokens?
If I were to ask you to list a few examples of assets in this world, what would you say? You will probably say Gold, Stocks, Bonds, Real Estate and whatever else it is that you find has to have value. Security tokens are, simply put, tokens that represent the ownership of these assets.
How is this actually done? Firstly, these assets are digitized. For example, a real estate title deed can be put onto the blockchain and its validity confirmed through AI (Artificial Intelligence). Next, a set number of tokens is minted to represent the asset. Owners of the tokens will own a part of the asset, depending on how many tokens they actually own.
What potential is there through STOs? If there is one word to sum up the main benefit it would be “Liquidity”. I am no real estate expert, but I am sure if you want to sell an apartment the ownership of this apartment will be transferred to only one party. However, with STOs the ownership of the apartment can be decentralized and you don’t have to wait for high net worth individuals to pay for the full apartment. This makes liquidating any assets in your possession a lot easier.
STOs vs ICOs
Since there have been few examples of STOs and the way STOs are carried out is still not entirely clear, I will be sharing my own personal opinion on the main differences.
Note that the Crypto space is still relatively new and that even ICOs may change significantly in the future. However, based on what I see right now these are the difference between STOs and ICOs.
The Current State of STOs
One company that I will be keeping a lookout for is Polymath. They intend to create a platform where companies can create their own security tokens that are recognized by regulatory bodies. In order to carry this out, legal delegates, companies, investors and KYC providers are all brought onto the platform. Polymath plans to connect investors with KYC providers to do KYC and legal delegates will be work with companies. What I like about this is how Polymath takes approval by regulatory bodies seriously, which makes this look like a feasible plan for now.
If you want to find out more, this article does a pretty good job summarizing what Polymath does.
Are STOs The Next Crypto Wave?
I think too many people in the Crypto space are always hyping up the future of blockchain without looking at the work that needs to be done at present. In the mainstream society, ICOs are still a relatively new term to many, and even for ICOs we don’t have a clear direction from how it will be regulated.
Because of that, I do not foresee STOs becoming a big thing anytime soon. For there to be liquidity in securities there needs to be mass adoption. With STOs being a term that is starting to emerge in the Crypto space, it is still early days but definitely something I will be keeping track of and you should too!
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Everything The Retail Investor Needs to Know About STOs Today was originally published in Data Driven Investor on Medium, where people are continuing the conversation by highlighting and responding to this story.