01 May 2019
Once upon a time, the blockchain startups had a problem. They couldn't get financing because no one really knew what they did. So they had to go looking to the tech community for money. It was around this time that Bitcoin started doing really well for itself and one company got the bright idea to make a coin offering. It was like an IPO in the business world, only with tokens that would appreciate in value.
The wonderful thing about these "utility tokens," as they were called, as they did not represent anything tangible. They weren't shares that carried a vote in the company and a right to dividends. They weren't backed by a fiat currency or real-world assets. They were just a coin that that was sold to community members who believed in the project: all the money, none of the responsibility.
Oh sure, buying the coins at launch could mean they would appreciate in value in time. If the startup had tangible plans of a product or a service, then the appreciation of the con would allow for a massive discount on the eventual product/service. However, there was nothing else – nothing tangible.
Previously, it would be shares of a company that were used to finance the initial stages of a business. No more. ICOs become a hit, and that didn't die down until sometime two years ago. That was because of two reasons – scams and China. Since it was so easy, comparatively speaking, to launch an ICO, it was more than profitable enough for scammer and fraudsters to abuse the trust people had in the ICO process. Coins were coins, and they were roaring, all the cryptocurrencies were in the middle of a never ending bullrush... until they weren't. Scams might have beat down ICOs, but it was China that killed them. When China outright banned ICOs, that changed the landscape forever.
STOs had been coming into existence since ICOs first launched, but they were tied to something tangible. That meant their worth was tied to the worth of whatever asset they were based on. Since an asset that is divided like that is known as security (kind of how the ownership of a company is split into millions of shares), thus the value of an asset can be split into X number of tokens. A house on the beach could be sold to thousands of people, and the value of the house would increase the value of the tokens issued.
The key thing about STOs is that there is already a bunch of laws and frameworks that regulate securities. The technology behind a security token is not as important as the regulator knowing that the token represents a fraction of an asset. That allows them to be more comfortable with the token and treat it accordingly.
This has lead to an increase in STOs or Security Token Offerings. All of the good stuff that ICOs brought about, only now with the power of regulatory hurdles that need to be passed. It also gives institutions that are used to dealing with securities some kind of head start. They will find it easier to invest in a token if they understand it. This is the reason why STOs are the future and ICOs are merely a dream of a crypto past that will soon be long forgotten.
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