- ICOs were historically easy to conduct, thanks to Utility Tokens
- Because of their simplicity, scammers emerged, creating a need for more regulation
- Security token offerings may attract more traditional investors and have the potential to revolutionize cryptocurrency
If you’ve been keeping up with the news lately, you will have heard about the big boom in cryptocurrency. The rise of Initial Coin Offerings, or ICOs, are also part of it, and ICOs are just as important as the famous Bitcoin.
If you’ve read anything about it, you will know that some companies have started to embrace these regulations through a new fundraising method. STOs will involve registering with reputable financial authorities in order to ensure compliance and provide more security for investors.
Initial Coin Offering
You probably already know about Security Token Offerings and the benefits they bring, so let’s talk more about Initial Coin Offerings instead. ICO models were relatively easy to conduct, and their creation has made it easy for founders to raise millions of dollars to fund their ideas. We have the creation of Utility Tokens to thank for this.
Utility Tokens function similarly to gift cards or prepayments, in that they can be utilized to buy services from the company that issued them. This also allows cryptocurrency to run without government intervention, furthering its development and placing greater emphasis on privacy and consensus.
During the boom of ICOs, the only real requirements for conducting an ICO were to develop a blockchain-compliant token, distribute a white paper, and put a team together. ICOs initially relied on public money, so marketing was also an important part of the process.
Because the ICO method was pretty simple, scammers began to emerge, which created a need for more regulations. The ICO model has its benefits, but many people see cases where the tokens that are generated resemble securities and don’t really have the utilities they claim that they have.
So what’s the problem with security tokens, anyway? The greatest benefit they offer is the fact that they have to go through traditional financial channels in order to achieve compliance. That in itself is estimated to bring in more traditional financial investors.
Institutional investors are often obliged to go through charters and contracts first, which determines what kind of investments they are allowed to make and how much risk they can take on. Due to the legal grey area of ICOs, they can sometimes be considered risky to invest in.
Initial Public Offering
If Security Token Offerings are compliant with regulations, then why not just an IPO? As STOs resemble IPOs in many ways, they still serve as a vehicle for raising vast sums of money for companies globally. However, not just anyone or any company can conduct an IPO, as it requires a tremendous amount of effort, reporting, preparation, compliance, earnings, and cash.
STOs replacing ICOs
If you’re wondering whether or not Security Token Offerings will replace ICOs and other established cryptocurrencies, the answer is that it is unlikely. STOs function and trade differently from Bitcoin and other entrenched cryptocurrencies.
Rather than replacing the utility token market completely, security tokens may renew people’s interest in the industry again. Big players are anticipating this next boom and are preparing to make moves for it. There are also many new and exciting developments they are waiting for. These new advancements might make the market a little more interesting.
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