Chapter 6: The Future Of Security Token Offerings
As ICOs fall out of favor and cryptocurrencies enter a bear market, many people are wondering what this blockchain thing is all about. Is the cryptoworld all it’s hyped up to be?
To redefine investing and show the true potential of blockchain technology, security token offerings (STOs) are taking the stage. The next few years will be an exciting time for this financial technology, especially if it overcomes the roadblocks that are keeping it from global adoption.
Here’s what we see happening on the STO battlefront in the coming years.
STOs will set the stage for a global marketplace
As STOs gain momentum as the newest form of equity crowdfunding, they’ll become the foundation for a global marketplace. Their underlying blockchain technology helps set the stage: availability for anyone who wants to participate, security through a distributed ledger, and transparency for all transactions.
This exposure to global markets is unlike other investment opportunities, all of which have been more or less localized. It’s been tough to invest in other companies around the globe because of these market constraints.
But STOs eliminate these boundaries because anyone anywhere with an internet connection can invest. There are no limits as long as global regulations for all participants exist.
STOs are laying the foundation for global regulations because they are regulated from the start. They don’t have to worry about a regulatory agency scrutinizing their token sale because they need to follow securities regulations in order to exist. Some token platforms seamlessly integrate the tiring process of anti-money laundering (AML) and know-your-customer (KYC) requirements into token creation, making regulation much easier.
STOs will open up investment opportunities to more people
A huge advantage to STOs is that they can be used for any type of asset: real estate, art, stocks, bonds, and beyond. Anything can be tokenized for ease of transfer. But don’t confuse these tokens with what their ICO predecessors were doing. There is one big, important difference: security tokens represent real-world assets instead of empty promises.
With STOs, investors aren’t blindly throwing their money at ideas — they’re investing in tangible things.
STO adoption rates will dramatically increase
The public watched as many US-based ICOs fell victim to SEC rulings. But this isn’t because the SEC is an overbearing government agency. Instead, their regulations are geared toward protect investors from companies that misrepresent themselves.
In an uncertain ICO ecosystem and an even more unstable internet, this regulation will be gladly welcomed by individuals who want more security and stability. STOs with solid operations and cash flow are more stable as opposed to risky, speculative startups with wild swings in market cap and no underlying value.
Once the public is knowledgeable on the inherent value of STOs, the next big jump will occur when they are introduced to the public market. We will see more mainstream adoption by less technologically sophisticated investors and fewer risk-tolerant value investors who are looking for measurable opportunity instead of speculation.
STOs will open up to the general public
In the majority of today’s markets, only accredited investors can invest in STOs. In the coming year, many industry professionals expect this to change, and STO investment opportunities will open to the general public.
When the available market goes from a limited number of private investors to the general public, anyone anywhere gets to participate. We believe this is where we’ll see the greatest fundamental shift.
STOs will challenge the conventional finance industry
Widespread STO adoption will challenge traditional financiers. This has always been a fear, ever since blockchain technology started appearing across industry verticals. But STOs will be a real thorn in their side.
Despite the fact that banks, financial advisors, and investment firms have adopted new technologies, their systems are entirely antiquated. Just look at the remittance industry: it can take days or weeks to send money to someone.
With STOs and the power of blockchain, transactions can happen instantly. There’s no waiting period or middlemen to pass through. The element of speed will play an important role in financial inclusion, because investors won’t be limited based on time or money. The only limit will be the speed of their internet connection.
Prospective investors previously needed to work with a broker dealer or other middleman that charged fees for their services. Beyond that fee, these professionals also charge a percentage for all of your assets under their management. Sometimes, only accredited investors would be granted access to private funding rounds — all because they had more wealth and were assumed to be better with handling money. But STOs will level the playing field. More people will have increased access and knowledge. STOs will deliver a way for everybody to access the value created by entrepreneurship for the first time, which will contest the old school way of investing.
STOs picked up the equity crowdfunding ball when ICOs dropped it. According to a 2018 annual report by Inwara, STOs hit an all-time high in October 2018 with a total of 22 STOs. The investment and trading industry led the pack, with technology and financial services not too far behind. If anything, these findings spell out a trend that more companies are seeing the liquidity advantage that STOs offer to real-world assets.
The notion that investing is only available to individuals with industry knowledge and money is false. Anyone can be an investor if they use STOs. They’re proving that investing doesn’t mean settling for less than you deserve.
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