STO, which stands for Security Token Offering, is a movement that features a new business model that mitigates risks for investors at the ICO stage or known as Initial Coin Offering. What makes STO stand out is that the tokens are backed by tangible assets, profits or company revenue as they are defined to be financial securities.

The reason behind the labelling was because it was suspected that most of the operations or financial plans conducted through ICOs in China were either illegal fundraising, pyramid sales schemes or other kinds of financial scams.

Pan Gongsheng, deputy governor of the People’s Bank of China which is China’s central bank, reportedly told a summit in Beijing that illegal financing is still being widely operated through STOs and ICOs, despite the efforts made by the government to cleanse the cryptocurrency market last year. Beijing’s decision to push away the usage of cryptocurrencies in the year 2017 was also mentioned to be a correct decision that potentially prevented the country’s economy from crumbling.

The governor said that

“the STO business that has surfaced recently is still essentially an illegal financial activity in China”

He also further added that cryptocurrencies were becoming the go-to for criminals to carry out illegal activities.

About a week ago, Huo Xuewen, the chief of the Bureau of Financial Work, also warned STO fundraising promoters that strict actions will be taken against them if they continue their promotions in Beijing.

A partner with private equity group United Asset Management names Ca Hua also commented on the situation, saying that “the regulators will continue to strengthen regulation in the financial technology market to ensure financial stability” and new financial business models are not welcome in the country for the time being.

Despite all the discussions about STOs and ICOs being illegal, blockchain adaptation, which is the basis of most currently existent cryptocurrencies, is relatively approved by China. One great example for this is the establishment made by the Chinese Surpreme Court which stated that blockchain can be legally allowed to authenticate evidence and used in a limited scope.