At the cusp of the initial coin offering (ICO) witch-hunt in 2018 by the US securities market regulator, many prospective ICOs considered switching to seemed like a safe haven — securities token offering model. With the much-needed hype to make the transition back then, many wondered if STOs would replace ICOs as the next evolutionary state of the industry.
Business expert and contributing author to Forbes Jim Preissler provides insightinto the subject of stagnating growth in the STO niche. According to his post, he suggests the hype about security tokens doesn’t match current development, saying that “there has been little actual tokenized security activity to date”. His opinion was that the bear market may have been largely responsible for this.
As observed in the post, old paper-based systems have been the order of service in capital markets. With the introduction of blockchain-type of digitization which makes processes immune to tampering, improves transparency and efficiently facilitates settlements, the capital market cannot afford to miss this upgrade.
Surprisingly, the transition has been rather slow, given how the ICO industry had radically changed the scape of crowdfunding, maybe forever. The ICO industry has pooled over USD 28 billion to date, according to data from CoinSchedule.
Jamie Finn, president and co-founder of Securitize, shared Preissler’s opinion, saying:
“CAPITAL RAISING HAS BECOME INCREASINGLY HARD AND ICOS [MAY HAVE] SHOWED A NEW WAY OF RAISING MONEY.”
They were a mind-boggling new tool for fundraising, however, the need to educate investors may have been left somewhat unattended. In his opinion, Finn may have suggested that digital securities following due process may be one of the safest ways to own a security asset.
More so, the slow development and low on-ramp onto the digital securities niche may have more to do with regulatory gray areas, as Preissler puts it. The emerging market these tokenized securities may provide would certainly come under the jurisdiction of the SEC, but clearly, the watchdog has struggled with providing an oversight standard for the industry.
There are maneuvers that could possibly scale the regulatory process, but the question that remains in a manner of speaking would be how to trade these tokenized securities from a legal standpoint. The conflict of interest emerges when deciding whether to treat STOs like private securities market that they are or conform them to behave like the public market.
For STOs, it’s not about “when lambo” or “when moon” as observed during the trending-hype seasons of ICOs in 2018, as most retail investors are beginning to understand in the very hard way — through frauds, scams, and illiquid assets — that maturation of the industry is the only way up.
Likewise, in spite of growing interests from institutions and sophisticated investors aiming at portfolio diversification into crypto, the determining factors are now more about security, liquidity that mirrors the public capital market, and a robust regulatory oversight that supports the growth of the industry.
Summarily, the bars are indeed high for the forerunners in the digital securities market as the industry needs high-quality operators willing to do what it takes to sustain it indefinitely.
