Taking into account the market’s appetite for high-quality, compliant cryptocurrencies, there’s a strong reason to believe that the STO model will have a lasting impact on the blockchain ecosystem. Below are ten reasons why STOs may in fact change the dynamics of the crypto industry as a whole.
STOs that follow federal guidelines and are approved by the SEC should gain instant credibility, taking much of the grunt work out of evaluating projects. This means investors can spend less time researching project members’ LinkedIn profiles to prove they are legit and spend more time evaluating the merits of the actual business model.
2. Breaking the Crypto Stigma
Increased regulation and credibility will put an end to much of the stigma surrounding cryptocurrencies among traditional investors. This could enrich the ecosystem with new capital and market players. Investors who are banking on greater institutional adoption should look beyond just bitcoin futures and custody services and toward STOs.
One of the most attractive features of ICOs (Initial Coin Offering) was the low barrier to entry relative to other capital markets. STOs could take micro-investing mainstream and allow more people to participate in startup ventures that were previously restricted to accredited investors and venture capitalists.
4. Traded as Securities
Platforms like tZero are working to ensure that STOs have a regulated venue for trading. This means cryptocurrencies will be traded as securities, giving investors ownership, voting and asset allocation rights. This may open the door to STOs one day being included in tax-free savings and retirement accounts.
5. Actual Ownership of Underlying Assets
Whereas so-called “utility tokens” were meant to give investors future access to a product or service, a security token represents actual ownership of an underlying asset. If you invest in a real estate STO, your holdings represent actual shares in physical property rather than an IOU for a future date.
6. Programmable Ownership and Compliance
Security tokens are programmable by nature, which means compliance protocols can be embedded into the actual asset and amended over time. This also means there’s no limit to the types of rules and systems that a security token can bring to the table. The ICO model didn't have this level of sophistication.
7. High Success Rate
Whereas most ICOs have either gone bust or are in the process of going out of business, the early track record for STOs has been overwhelmingly positive. According to one estimate, STOs currently have a success rate of 99%. Whereas ICOs merely sold their whitepaper, STOs are more likely to have something real to offer. Most ICOs merely sold a pipe dream.
8. Low Fees are here to Stay
Blockchain technology has reduced the need for an expensive middleman and has passed on those savings to investors. The emergence of low-fee investing will only strengthen under the STO model given its programmable compliance and ownership features.
9. Decentralized Assets Remain Decentralized
As the SEC has already noted, regulation impacting security token offerings have no bearing on assets that are “sufficiently decentralized,” such as bitcoin and Ethereum. Decentralized money is here to stay, except now the stigma associated with cryptocurrency and digital assets go away.
10. Increased Innovation
A regulated ecosystem for tokenization will likely open the door to greater adoption and, ultimately, new innovations in the blockchain arena. A more innovative environment means more investment opportunities and wealth creation. This trend is already well underway as startups and institutions continue to utilize decentralized ledgers.
The ICO boom may be long gone, but the age of tokenization has only just begun. According to digital asset banker Finoa, tokenization has the potential to do to ownership rights what digitization did to media. This new paradigm will impact everything from standard issuing products like stocks and bonds to smaller and more illiquid assets like business shares and real estate. For these reasons, there’s a lot to be bullish about when it comes to security token offerings. A current reading of the market suggests demand and adoption will be slower to materialize given that regulatory standards have only just been applied and implemented. But the launch of tZero and the growing appetite for blockchain-based projects means STOs are a potentially future-proof asset class.
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