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Security Token Offerings: Recent Progress, Trend Analysis, and Projections

Cryptocurrency financial operating is different from the traditional financial world, where startups adopted crowdfunding to raise funding. In the crypto market, there was a need for some secure mechanism to raise funding for startups.

This need gave rise to the innovation of ICOs (Initial Coin Offerings), a method used to raise funding for startups. Although ICOs were launched to facilitate the market and help the startup owners sell tokens and get the required funding, it was misused. Many projects were launched with fancy promises to raise funding and disappeared after raising the funding using ICO.

What are security tokens, and what makes them so special?

In short, ICOs were unregulated and had no downside for project founders, so a regulated and secure way to raise funding was needed. This gave rise to STOs (Security Token Offerings), a secure, regulated, and AML compliant method to raise funding by selling tokens that hold some value in the form of a financial asset.

Figure 1. Highlighting key differences among ICO and STO by e-zigurat.com
Via https://www.e-zigurat.com/innovation-school/blog/ico-vs-sto-what-is-what/

Importance of STOs

So what improved, and how STOs solved the issues of ICOs. Let’s have a look at the following key factors:

  • STOs gained the trust of the market as they were secure and reliable.
  • STOs helped in getting rid of malpractices that were adopted in ICOs.
  • The removal of third parties made the process transparent.
  • STOs are global; anyone from anywhere could invest in STOs, thus a greater number of investors and increased liquidity.

Progress of STO Technology – Making ICOs Obsolete?

To properly assess the rise of STOs and the progress made in the past, we need to follow three relevant perspectives:

Overall Development of Security Token Offerings in Recent Years:

Observing the graph (see below) shown in the study we could observe, a stable regulated infrastructure layer will further drive the prominence of STOs in the financial and investment market landscape.

Corporate Directly-Issued Security Token Offerings

In 2019 established institutions globally conducted Security Token Offerings. These institutions include big names such as Austrian Government itself that raised USD 1.4 bn, and Bank of China raised USD 2.8 bn. Tokenization was done in the form of bonds.

Tokenization Ecosystem

A well-established tokenization system will help in the development of STOs. When we talk about the ecosystem, the US is leading the market and is home to well-established tokenization companies.

According to a recent publication by Strategy& in the first ten months of 2019, over 380 token offerings raised a total of USD 4.1 bn. So, the market has huge potential and needs proper regulation to make it grow further.

STOs have gained a lot of popularity in recent times due to their regulatory compliances.

According to Satis Group LLP (an ICO legal advisory firm), an estimated 81% of ICOs were scams where project owners “had no intention of fulfilling project development duties with the funds” they raised through their ICOs.

This noticeable shift from ICOs to STOs is largely driven by the recent bottoming of the retail market (both Bitcoin and Ethereum) and softening demand from retail investors for ICOs. The crackdown has also resulted in investor confidence erosion, and this prompted the investors to change their preference to STOs,

by InWara

The market quickly adopted the concept of STO, and it became popular over time. It is estimated that the STO market will be worth $10 trillion over the next few years. (Ref: Jess Lu: https://medium.com/@jesslu123/security-token-security-token-offerings-the-comprehensive-guide-9e58b9306a4b)

According to an annual report by InWara, more than 100 STOs were launched in 2018. Since then, the number is growing as different kinds of industries are now taking part in STOs.

Figure 3. STOs Landscape: Breakdown by Industry
Via InWara (Market Intelligence Platform)

When it comes to the adoption of STOs by region, European countries dominate the market. However, the US is leading globally.

Prominent STOs

Some of the most prominent STOs are:

  • Scientific Coin
  • Monart
  • Reit-Bz (BTG)
  • BitBond
  • edeXa
  • Ikioo Tech
  • Tropizen
  • Aspen Coin
  • Blue-Ocean Ventures
  • HealthBank

Source: www.invara.com

The Bottom Line

Although STO is still a relatively new concept in the digital financial market, it has the right potential when combined with the security of blockchain and technologies such as smart contracts. The future of STOs seems promising. It might be too early to say, but security tokens could transform equity just as Bitcoin has transformed currency.


What do you think regarding the future of STOs? Keep in touch with us at stofilter.com!