The initial coin offering (ICO) has come about as a result of distributed ledger technologies (DLTs). As a fundraising vehicle utilized by DLT projects for the generation of capital, an ICO typically comes in the form of well-established crypto tokens such as bitcoin or ether. More than $6.3 million was raised through ICOs in the first quarter 2018. Below, we will touch on the aspect of the STO accredited investor and the future of these security token offerings.
The token and tokenization of digital physical assets is a fundamental aspect of this new paradigm. There are various types of tokens available. A number of projects have generated funds by selling these tokens through the mechanism of an ICO.
The most common tokens currently sold through an ICO are either existing utility tokens, or those that will eventually become utility tokens when the funds have been generated to develop the necessary infrastructure to support the tokensO.
The Security Token Offering (STO)
In the fast-paced world of security token offerings, government regulators are attempting to catch up. There is currently uncertainty around what type of regulation may be applied to this new form of ICO – that is, the security token offering (STO).
As it concerns a utility token, the purchaser does not own anything. There are no actual assets backing up the token. However, with the security token, the STO accredited investor does own a portion of whatever the token represents.
“Tokenized securities” do have additional advantages in terms of accessibility, liquidity, and traceability, in addition to decentralization. At the same time, security laws will apply to these tokens.
The Promise of Tokenization
Security assets such as paintings, houses, or investment portfolios each represent a real-world asset that can potentially be tokenized as a security asset. Assets may also be digital in nature, including digital artwork and intellectual property.
STOs are gaining momentum. As they do, the infrastructure to support projects involving these offerings and security tokens is developing.
A number of these projects are in a position to disrupt established institutions that operate in securities, such as stock exchanges. They offer advantages over these traditional institutions by creating transparent, highly efficient, and decentralized substitute securities. .
Historically, tokenization of assets has been non-liquid in nature, but the promise of tokenization is very real. The IPO market generated $188 billion in 2017, and only represents a small portion of what could potentially be tokenized. The possibilities are virtually endless, potentially including debt and commodities.
Regulation of these offerings is in the process of developing and catching up with industry practices. However, the movement toward STOs, as well as the opportunities available to the STO accredited investor, appears to be picking up momentum.
