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Security Token Offerings. Radically Different, Or Just Different Packaging?

Security Token Offerings. Radically different, or just different packaging?

Right now in the blockchain and crypto space there are a few major priorities arising in response to the demand for a safer, more regulated marketplace. The last year has seen incredible amounts of money being raised through the ICO administering utility tokens model which is fundamentally crowdfunding, with no promise of financial returns.

It is very important to note that whether or not the company deliver what they set out to do once raising the funds — the money would belong to them. Honourable projects would employ a smart contract between themselves and the investors with a stipulation included meaning that if the total amount required wasn’t raised, then the individuals investment amount would be returned — this actually happened quite rarely in reality and most projects (event the blatant scams) seemed to hit their targets.

But many people didnt even understand what a smart contract was when making the purchase and as such never really did their due dilligence when investing. Politely speaking, they took a punt, some worked out, whilst most didn’t.

If 2017/18 taught us anything is was that scams and fraud were rife in an unregulated space and that organisations making ‘world changing’ promises were receiving large amounts of money and then vanishing completely. This article by CoinTelegraph does a great job of explaining the top 5 all time scams to date.

Obviously, this trend couldn’t continue forever and the increased media attention and growth in knoledge meant that potential investors wised up to scams and fraud at their own pace. In the USA for example a blanket ban on all ICOs was imposed to protect citizens from scams. Whilst the US took a very hardline approach that arguably stiffled innovation in the space, other countries such as Lithuania, left it mainly untouched and allowed the phenomonom to emerge, grow and devlop organically.

So what is an STO? is it actually different to an ICO? or is it just a clever play on words employed to reload the crazy situation we found ourselves in at the start of 2017?

The SEC and FINMA have broken down tokens into two different categories:

  • Utility Tokens & Security Tokens

Because most ICOs are investment opportunities, most tokens qualify as securities. However, if the token doesn’t qualify according to the Howey test, then it classifies as a utility token. These tokens simply provide users with a product and/or service. Think of them like gateway tokens or the tokens you would receive at an amusment park to use on rides.

A crypto token that passes the Howey Test is deemed a security token. These usually derive their value from an external, tradable asset. Because the tokens are deemed a security, they are subject to federal securities and regulations. If the ICO doesn’t follow the regulations, then they could be subject to penalties.

Since the assets which are represented by security tokens already exist in the real world, they act like a bridge between legacy finance and the blockchain world.

The ICO space is pretty much dead now, because of the lack of accountability due to a lack of regulation for utility tokens. In order for the ICO space to regain some credibility, it appears to make sense to try to join the crypto and the legacy finance spaces together. There are numerous benefits to this way of sourcing funding, most notably the protection afforded to investors is why the hype is real this time.

This subject, and more is what we will be discussing from 6.30pm on the 3rd October 2018 at The Blockchain Centre Vilnius in association with Smartlands and Stellar with our free event — Security Token Offering on Stellar Blockchain.

If you are engaged in an active blockchain project, or about to be, and are still thinking about doing an ICO with a utility token then this event is for you! Simply click the registration link under the banner below to get the full event agenda and information — we look forward to seeing you there!

If you’re located outside of Lithuania and cannot be here in person then we as always we will live screen the event via our Facebook page from 6.30pm UTC+3.


About Blockchain Centre Vilnius — Blockchain Centre Vilnius is the first blockchain technology centre connecting key stakeholders in Asia, Australia, and Europe. Our goal is to unlock value using blockchain technology in business, finance, and public administration.

About Stellar — Stellar is an open-source, decentralised protocol for digital currency to fiat currency transfers which allows cross-border transactions between any pair of currencies. The Stellar protocol is supported by a nonprofit, the Stellar Development Foundation.

About Smartlands — Smartlands is a worldwide Platform for tokenization of real economy assets by issuing asset-backed tokens (ABT). Use a ready, secure and proven solution developed by Smartlands.

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