A look into how security token offerings could take the place of the 'traditional' ICO
The fact that the cryptocurrency industry is completely buzzing comes as no surprise, as it has been growing steadily in recent times. Earlier this year, CoinDesk reported that, in the first 3 months of 2018 alone, ICOs raised more money than in the entire previous year. With these figures, ICOs has proven themselves as a good financing method, even capable of replacing traditional IPOs.
In fact, Initial Coin Offerings are becoming a new way of crowdfunding. They basically allow any business to launch its own cryptocurrency and transact it, in the future, in exchange for exclusive benefits and services, such as loyalty programs.
In other words, ICOs made it possible for any good idea to be financed by offering crypto coins, which eventually led to a tsunami in emissions in the US financial market and uncovered two sides of the same coin for investors who have been accustomed to traditional finance.
On the one hand, the ICOs opened a new front that was much less bureaucratic and costly to enable the first rounds of capital, increasingly scarce in the Venture Capital ecosystem or via stock offerings.
On the other hand, they also presented risks to investors because they did not offer tangible guarantees, since, in practice, digital currencies are not shares of companies and those who bought them will have nothing to receive if the company sinks into oblivion.
And that is exactly where Security Token Offerings (STO) come in, as they open a promising new market with the potential to reach $10 trillion by 2020, according to market experts. The good news is that companies seeking to launch security tokens are required to follow the same process to negotiate shares on the stock exchange.
This means that investors buy tokens that are tied to stocks or assets of the company, thereby securing a slice of the business and consequently have the right to dividend gains. This means that they will not run the risk of seeing no return on their investment in case the company does not perform as expected.
I had the chance to interview Laimonas Noreika, co-founder and CEO of DESICO, a company that focuses on security tokens, to learn more about security token offerings, what they mean for crypto, and more information about DESICO, as well.
Check it out below.
What is DESICO?
DESICO seeks to become a platform for issuing, investing, and trading security tokens for both institutional and retail investors, in full compliance with the law. The goal of DESICO is to create a gateway for retail and institutional investors to step into the VC-dominated startup
DESICO seeks to enable investments in financial instruments issued on the blockchain in a legal and compliant way. DESICO will hold its own STO (started on November 7) to show the full potential of security tokens and our platform. It will be open to institutional and retail investors.
We plan to list our first STOs on our platform in Q1 2019.
How does a security token offering differ from an ICO?
Unlike utility tokens, Security tokens are asset-backed financial instruments.
Even if its a startup, it all depends on the asset backing the offering and the potential
the company has.
Utility tokens are based on network affect while Security tokens are based on actual performance of the company – no matter its revenue participation Note, Equity or profit sharing Note. Investors get their returns from the results the company delivers.
What problems do STOs solve?
The primary problem with ICOs is they aren’t self-regulatory. However, DESICO aims to bring crypto investments to the financial mainstream by disrupting the $155 Billion Venture Capital industry and launching a platform that manages the procedural KYC and AML requirements, complies to current laws, and enables investors a safe way to access high-risk crypto investments.
For example, U.S. investors must be accredited to make cryptocurrency investments through the platform.
In a recent interview, I explained that out of all the security token platforms, we are the one who is doing our STO the same way that we promise we will perform for our clients, who will be eligible to do the same in the future.
Where will DESICO operate? What about the US? Is that impossible? Could you tell me more about that aspect?
DESICO will operate fully within the current securities and crowdfunding laws of Lithuania, a European Union and Eurozone member state.
The company already has official endorsements from Lithuania’s Ministry of Finance and its Ministry of the Economy. Only Accredited USA investors will be able to invest in Security tokens under Reg D, 506c exemption
I'd like to thank Laimonas for taking the time to answer some of my questions regarding security tokens and ICOs. More information about DESICO can be found here.