There are many myths and misconceptions about security tokens that are leaving people misinformed. Even though there are untrue myths about them circulating, it’s important that investors learn what is real and what isn’t so that they can further invest in them knowing the real advantages. Here are some myths that are important to know about:
“There is strict regulation of security tokens, which ruins the whole idea of the blockchain.”
Some might see the regulation of security tokens as an inhibiting factor, but it restores credibility into the crypto world and allows for better trading of tokenized assets. If security tokens are going to become a more mature way of trading, we should want it to be at an institutional level, which will require rules that are clear and mitigate risk. Stricter regulations will make security tokens a safer investment.
“Security tokens must represent the equity of a company.”
While the actual definition of what “security” will vary around the world, generally, it includes an investment contract which is reinforced by the Howey Test. This will determine if an investment is deemed a security or not. What is important to stress here is that securities do not need to represent equity in a company. They can be revenue sharing models or other valuable assets, which will attract many potential investors with different levels of risk-taking and varied investment strategies.
“Security tokens will never achieve the level of Bitcoin.”
You cannot compare bitcoin to security tokens because security tokens are cost-friendlier to transfer and more scalable to use for contractual investments. If there could be more compliance with security regulations on a global scale, security tokens one day may be completely trustless. They could become a superior financial instrument in comparison to traditional currency. Security tokens allow for instantaneous settlements with less counterparty risk.
Security token offerings also improve upon other traditional financing options by removing an intermediary such as bankers and centralized arrangements, which will reduce fees that would be owed to these third-party’s for services provided. Smart contracts will reduce complexity costs and paperwork. Token securities will also limit the risk of corruption or any manipulation that could be made by financial institutions.
“You will achieve guaranteed success with Security Token Offerings.”
Conducting or investing in an STO doesn’t mean that you will be guaranteed success right away without question. There are good and bad investments, and it is possible that you might invest in an offering that is not viable. As offerings may comply with any legal requirements or obligations, they may lack profitability or might fail to deliver what is promised or expected of them.
There also might be the risk of scams and fraud toward investors. Make sure that the business practice you are investing in is reliable. You should do your research, as an investor, so that you managing your funds at risk. Check for proven track records, solid cases, and actual product developments.
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These ideas are opinions and not to be used as legal or financial advice. Please seek a lawyer before transacting or employing a marketing strategy.
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