26 February 2019 17:20, UTC

Although we might still see few remnant ICOs struggling to raise funds nowadays, it is quite clear that the future lies within the Security Token Offerings. 2018 has been the most difficult year for ICOs since its inception; it has never been so hard for ICOs to raise funds. The actual investments made are in constant decline for more than a year already. If we compare funds raised through ICOs in January 2018 (over $2.1 Bln) with January 2019, which is just over $110 Mln, we can see a considerable difference — twelve months ago ICOs raised twenty times more money.

ICO Summary for the last two years

The experience of 2017 and 2018 have shown us billions lost to scammers, hackers and fraudsters. Such staggering numbers shake the confidence within the blockchain investor community. This gives the feeling that even if investors make their due diligence about their investments and are able to avoid scams, they are still exposed to huge risks of getting hacked.

As a result, such investors not only withdrew from the crypto sphere but also generated a substantial negative network effect of influencing others of not investing in high-risk ventures. Lastly but not least, even if investors were not scammed or hacked, they were still faced by huge challenges of inexperienced entrepreneurs who drove their projects to utter failure (whether initially planned to be so, or not), and those who had the needed experience could not deliver on time which made the situation even worse.

STOs As a Potential Solution for 2019

Security Token Offerings provide a minimum level of protection to investor funds — this is mainly due to the regulatory requirements and compliance needed for such offerings to take place. Although part of the community sees such regulations as a burden on entrepreneurs, the truth is that ICOs have proven to be a colossal failure due to the lack of such regulations. When virtually any individual in the world can raise tens of millions just for a promise which has been made on a PDF document, without having any legal consequences for not delivering anything, such promises deemed to fade away right after the funds have been raised.

Compared to an STO, the founders hold much more responsibility about the way the funds have been utilized and they can’t simply and easily run away with the funds due to the KYC & AML procedures which they had to pass through before going live with the fundraising. STOs also help in reducing the speculative nature of cryptocurrencies and tokens, since they are backed up by real assets of the issuing company, which makes their valuation easier to calculate just like traditional stocks which represent shares of a company.

If we compare security tokens to utility tokens, we find out that most of the utility tokens has never been listed on an exchange, which means that their value will always stay zero, regardless to whether the business will eventually come to live through a different implementation of what initially has been planned or it will never be realized.

There is no legal way for investors to challenge the founders of an ICO for not listing the utility token. In the case of an STO, especially when the tokens are backed up by actual shares of the company, holding such tokens grants ownership in that company — whether those tokens have been listed or not, their value will always be there.

Conclusion

There are just as many people who believe in blockchain as those who believed in the internet during the early years of the 1990s. Like every newly born industry, entrepreneurs and innovators have to go through a trial and error period until they find the perfect set up. 2017 was the year of ICOs, while 2018 proved the failure of such ICOs. 2019 is going to be the year of STOs, which will give birth to a new attempt of crowd fundraising. It will provide grand investors much higher level of security from all aspects, mainly due to the regulated nature and strict compliance.

Although most of the countries around the world have not yet regulated STOs, some countries managed to do so and attracted many blockchain startups, relative to their size, when they are compared to the USA — Malta, Estonia, and Singapore are only a few examples. Such countries which pioneer in regulating STOs, will end up with the lion share for the long run.

Image courtesy of Mentor Market

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