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STOs, the Path to Cryptocurrency Mass Adoption?
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[Image: stos-the-path-to-cryptocurrency-mass-ado...g?1580x888]
The days of the Initial Coin Offerings, or ICOs, are over. They were something like a flash in a pan. The first one was held in July 2013 and since then ICOs have raised an astonishing $10 billion. But their time is done. Too many people think of ICO’s as scams, schemes, and the spawn of ‘shitcoins’. Yet companies still need to raise money. Energetic entrepreneurs still need funding. What to do, what to do.

Enter the STO: Security Token Offering. Here is a way to raise money that has the potential to be safer, far more secure, and -- for the first time -- legally open to the big players: institutional investors.


STO vs. ICO -- ding ding, fight!

Briefly, in layman's terms, a security is generally anything that is an investment (i.e. you buy a thing only because you think it will go up or down in value). The thing doesn’t actually do anything by itself. Stocks and bonds are securities because those pieces of paper (or digital certificates) don’t actually do anything.

The Death of the ICO

ICO’s got around those security laws because they promised that the ‘coin’ they were building would do something -- and was therefore “not a security.” Additionally, these ICO issuers intentionally soft played their white papers and one-pagers. For example, a standard ICO sales contract does everything to avoid the word “investor” (using terms like “buyer” and “purchaser”). But let’s not butter the biscuit too hard here -- people who bought into ICO’s did so because they wanted to go ‘to the moon’ in a ‘lambo.’ In other words, they treated these coins as securities.

Consequently, ICO’s filled up with scam artists, exit scammers, and general hogwash. Then, the SEC moved in and began shutting them down. China banned them. Various European countries began cracking down. Basically, all hell broke loose and ICO’s quickly lost steam -- some even vanished in a poof of smoke.

[Image: ico-fails-compressor.png]

The Birth of the STO

STO’s propose to be completely different. 180 degrees, night and day, different. Instead of doing everything in their power to avoid rules, laws, and regulations -- they embrace it. After all, it’s in the name: Security Token Offering.

Specifically, STO’s are trying to stick to and adopt the SEC guideline on securities which has been around for almost 100 years. This regulation has two levels: Tier 1 and Tier 2. The first allows for offering up $20 million in a 12 month period. The second increases the offering to $50 million.

Quote:Both offerings require jumping through a few basic hoops: “company eligibility requirements, bad actor disqualification provisions, disclosure, and other matters. Additional requirements apply to Tier 2 offerings, including limitations on the amount of money a non-accredited investor may invest in a Tier 2 offering, requirements for audited financial statements and the filing of ongoing reports. “

The benefits of jumping through the hoops? The firm gains legitimacy, trust, and transparency -- three essentials which are sorely lacking in almost every ICO -- three essentials which have the potential to open the floodgates of institutional investor funds and even, quite possibly, mass adoption.

Institutional Investors and Mass Adoption

Here’s a bit of a bombshell to highlight the point: Coinbase, the largest Bitcoin exchange in the U.S., offered up its President and Chief Operating Officer Asiff Hirji, in a press briefing so that he could say: "Coinbase will soon be capable of offering blockchain-based securities, under the oversight of the U.S. Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA)."

[Image: number-of-sto-sales-compressor.png]

This news from Coinbase shows where they are going. They acquired Keystone Capital, a financial services firm, just so they could speed up the process of becoming a fully regulated broker-dealer. In other words -- they are preparing for STO’s. They are ready. They are eager.

And why not? With an STO, a company has a chance to offer exactly what they are intending: investments. No more beating around the bush or saying ‘buy our coin because it will do X, Y, and Z.’ No more selling hot air. Well, maybe they will be selling hot air but at least they’ll be upfront about it -- and at the very least if they don’t fulfill on their promises then they will be legally liable in court for it.

Furthermore, an article at INC written by Darren Marble, states that:

Quote:“STOs are an excellent option for companies looking to raise industry capital from individuals and institutional investors in a way that’s both fully compliant with securities laws and also allows for a highly tailored form of investment vehicle. For startups seeking capital, STOs are a viable and attractive option.”

As more startups turn away from ICOs and into STOs, and thus lay the groundwork for what to do and how to do it, then more startups will pour in. And by adding existing regulation to coins and tokens, by jumping through the hoops of government regulation, by doing what it takes to become ‘legitimate security offerings’ -- these startups will build trust. And what is that trust worth? It’s worth the biggest prize of all: mass adoption.

Tens of millions of people around the globe have not purchased Bitcoin BTC, 0.39%, and most likely won’t. They’ve read the headlines calling crypto ‘a bubble about to pop.’ They’ve seen the TV reports of money laundering and criminal activity. They’re scared.

[Image: heard-of-vs-hold-compressor.png]

Nevertheless, all these people want to retire comfortably someday. All these people want to park their hard earned money somewhere. Unfortunately when they hear the word ‘Bitcoin’ they first think about all the negative headlines. But when a big, established pension fund, hedge fund, or other rock-solid institutional investor is finally able to present them with a regulated, approved investment vehicle (an STO) -- these people may actually listen.

STO -- it stands for Bright Future

Coinbase and myriad large players are preparing for the future of cryptocurrencies: the STO. Many budding new companies are doing the same. This combination of eagers startups creating projects and eager platforms seeking to represent these projects may lead to a bigger boom in financing than the ICO age. We must be prepared. But learning about STO’s -- and more specifically -- picking the right STO’s requires a bit of knowledge. 

If you’re new to cryptocurrencies, a good diving board would be reading this ‘Blockchain for Dummies’ guide to get a solid and necessary understanding of the technology on which they are built.

All in all, the future of cryptocurrencies is bright. From Smart Contracts to STOs -- it’s time to learn about where our digital world is going so we can be there when it arrives.



by R.R. Hauxley
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