The ongoing bear market has triggered many speculations, usually focused on the possibility of some big change in the market or the industry overall. The same is happening with fundraising campaigns.
ICOs are passing through a very rough period of distrust, caused by catastrophic market conditions and even worse history of self-regulation, which left many investors holding bags of nearly worthless coins.
As the amount raised through ICOs per month declined throughout 2018 from $1.5 billion in January to a mere $74.5 million in December, the media has been proclaiming that ICOs belong to history, while STOs (Security Token Offerings) are the thing bound to explode in 2019.
Analogically, the media began looking for alternatives, and STOs were found to be a perfect replacement for the stumbling utility token-based fundraising campaigns.
Security Token Offering is a fundraising campaign through which a company looks to receive financial backing for their project, giving investors security tokens in exchange for funds.
Security tokens are, basically, smart contracts that represent the company’s equity, provide an owner with voting rights, and, most importantly, the right to share dividend.
Financially, security token provides much more than utility token for investors who are not really keen to utilize their coins on the project’s network but only speculate on secondary markets instead.
However, there are some obvious problems.
Securities are highly regulated assets.
Every country has strict rules that determine every small detail regarding the legal protection of investors, KYC (Know Your Customer), AML (Anti-Money Laundering) and much more.
All these rules imply that the company will have to include banks, legal representatives, accountants, custody providers, and others into their business, which tends to be costly, and time-consuming.
Furthermore, as much as security tokens have all the attributes of traditional security, regulations don’t have clear rules about these assets in their digital form, which could lead to further complications.
Moreover, if the company wants to reach a global market for its STO, they have to comply with each and every country’s regulations to be able to sell their digital securities overseas, and some of the biggest markets in the world have already expressed their negative sentiment towards the supposedly new ways of security offering.
Once the company fulfills all requirements, there is more trouble looming on the horizon.
Simply put, once security tokens are successfully distributed to investors, no voluminous secondary market is out there waiting for their assets.
There is virtually no liquidity for security tokens at the moment, and, because establishing a regulated market for such securities would take as much, if not more, paperwork and compliance as for issuing them, it looks like we are not as close to a larger liquidity pool as some may think.
Buyers and sellers produce liquidity, and despite the fact that there are a few trading platforms available, they have failed to generate enough trading volume for us to consider them as serious contenders for a noteworthy marketplace.
On the other hand, traditional exchanges, which can provide the much-needed liquidity, are either still skeptical of digital assets, or don’t have the infrastructure needed to trade security tokens.
Since technology, in this case, still fails to provide the level of security needed for serious investors, it will probably be a while until traditional exchanges start looking to implement trading of digital assets into their systems.
Are investors waiting for STOs to make a grand entrance in 2019?
Securities are relatively easy to invest in, but despite that fact, most people don’t. Still, compared to some gains already seen in the cryptocurrency market, various forms of securities can be considered a slow-growing investment.
Perhaps that was the main reason for investors to reach out to the highly risky ICO market, and will now look to find a balance between two worlds in STOs.
Still, looking at how long it took for cryptocurrencies to reach the already famous bull run of 2017, the invoked digital securities market has a long way to go before it starts attracting serious players, so it is entirely possible that 2019 will not provide any answers.