SECURITY TOKENS: EVOLUTION FROM ICOS
INTRODUCTION
Did you know that ICOs raised more startup in Q1 of 2018 than the entire 2017? According to Etherscan over 20,000 token contracts have been written and deployed.
It's a fair observation to say the legality of 'creating virtual currency" wasn't considered.
You see with fiat you can't just wake up and say "Oh, from today I want to spend my own currency called the Kamako" spend a few minutes typing some code and voila... Kamaco (KMC) is born. Sadly, that's pretty much what's been happening with crypto. Apparently, it's that easy.
The thing about money is that if people won't accept it as a form of payment/exchange, then it's not legal tender.
So while we've had many community-backed projects such as Bitcoin, Ethereum and Steem, we've also seen the double-edged sword effect of few minds creating a fictitious project and conning communities or investors into buying in on their pipedreams before taking off with millions in investments.
The lack of regulation is a defining factor of cryptocurrency. After all, a major tenet of cryptocurrency is DECENTRALIZATION. How then can a currency be decentralized if it still has to go through an authority? Compromise may be good, but it negates the entire point of the movement.
What we all agree on is that it is unacceptable for investors to be played for fools. Something must be done to curb bad actors. This is why some countries like China have banned cryptocurrency altogether.
Financial authorities like the SEC and its jurisdictional counterparts worldwide have long taken a stand against the perceived fallacy of some projects offering securities and issued many warnings about regulatory compliance and investor protection legislation. We saw some steps towards compliance like when the Winklevii tried to legitimize their Gemini business and get Bitcoin registered as a tradeable asset.
Many projects started claiming they weren't selling Security tokens (tokens basically attached to monetary value) but were using Utility tokens (tokens that power the ecosystem and are used to activate operations).
However, the regulatory bodies require more than just your word. The crypto world is a mostly anonymous ecosystem and we can't be separate who is truly investing from the person laundering money or financing crime/terrorism.
Also, just because you call a token a utility and throw in a few user case scenarios doesn't mean it cannot be used as a security. Sometimes the use-cases are a long stretch and it's just better to be honest and compliant. The SEC frowns greatly upon those who fraudulently insist on claiming they are utilities and those found guilty are subject to heavy fines and penalties. It's not uncommon to receive an order to return all invested funds to their owners.
INTRODUCTION OF SECURITY TOKENS
"If you can't beat them, join them"
The show must go on, and in the face of unsavory repercussions, some teams have decided to comply with the regulatory bodies. The conditions are however stringent and frankly expensive. The regulatory bodies want things such as a KYC/AML database, accredited investor compliance, and some other intrusive conditions that are not only resource-extensive but also go against the ethics of a decentralized community. Basically, we are now to move from a decentralized ownership of virtual tokens to a registered trading of documented and monitored virtual stock.
The industry is still evolving so we are not quite sure what the ripple effects of this would look like. I, however, imagine holders of the token will have more control and say like shareholders of traditional stock. A prevalent protocol will be Distributed Proof of Stake, but this time investors will get added benefits such as rights to liquidation should the project fail.
Some other benefits of Security Tokens relevant to issuers include:
• online exchanges that provide 24/7 liquidity
• Fractional ownership — attracting a deeper pool of investors in secondary markets
• Faster transaction and settlement times.
• Reduced cost of liquidity — fewer middlemen, lower fees and operating costs.
• Dynamic updates — Security Tokens that are updateable and smart
Source
Another opportunity that Security tokens offer is Cross-Organization Tokens. Good examples are DAOstack and Quibee.
- DAOstack is a Decentralized Autonomous Organization token that will be used to regulate corporate governance.
- Quibee is a brand loyalty token project that will allow organizations reward their loyal customers. Quibee intends to offer a cross-brand service (E.g. you can trade your KFC points to buy a Starbucks coffee).
This means that Security Tokens can be applied to just about any company and not only startups. Tokens can more or less become digital shares of any already established company. It's a slippery slope with both potential good and bad results.
The major advantage of these Security Tokens is that they will come with the transparency and immutable records that the blockchain has to offer. The borderless nature of cryptocurrency will also give corporations exposure to new investor pools and increase liquidity. You can say that Security Tokens offer a better balance and give authorities and regulatory bodies a more legally-compliant product to work with. I'm however skeptical that a centralized record of accredited investors won't undermine the transparency of the entire process.
Should the crypto community embrace the change or fight to preserve the anonymity of the ecosystem?
How would you suggest we combat the bad actors creating imaginary projects and too-good-to-be-true whitepapers to scam investors?
I'd love to read your comments.
This story was recommended by Steeve to its users and upvoted by one or more of them.
Check @steeveapp to learn more about Steeve, an AI-powered Steem interface.
This is quite a catchy article to say the truth. and @ulqu3 it is not unexpected that articles of such contexts would be coming around around this trying times with the crypto ecosystem. The reverse was the case as of this date last year, things were tasty and quite rosy. But in all, I would say, with all the problems posed by the government making the said decentralisation a fantasy today alongside the big hands accumulating crypto resources as they see fit would all be a thing of the past and thing shall be better crypto-wise.
However, this article is quite so technical, an average user would find it hard to understand a phrase of it at a point, but it is okay.
Thanks for sharing...
@Jodekss
Great to see your comment @jodekss :) Thx for sharing your view on that topic.
Im personally very interested with STO and future of blockchain and comments like yours are surely helping a log.
Cheers
Piotr
I will always keep to doing my utmost my dear friend, @crypto.piotr ;)
Very interesting and well written article @ulqu3. Thanks for sharing :)
Cheers,
Jan
DPOS is a very exciting innovation in blockchain technology, in my opinion. It has allowed the steem blockchain to become one of the fastest and cheapest crypto transfer networks out there.
Is it a good investment in my opinion? Only if you are interested in the direction of the project. My investment in steem is seen more like stocks than my holdings in Proof of Work coins. That is because of my take on the, virtually, unlimited production of steem and the potential corruption of DPoS coins from the perspective of their present governance schemes. The extreme governance of EOS (allowing freezing of transactions and worse) would have me waking in sweats if holding any.
My vision for steem is for it to be an open source alternative to the Lightning Network. That is, to use the steem blockchain for PoW transfers. We are supporting such merging of the DPoS and PoW communities with our @devcoin project on the steem blockchain.
We see those who consider steem only as an investment, or as a means to make some easy fiat, coming and going in the tides of bear and bull markets. Good riddance to them. In my opinion we need believers in the project not lambo dreaming investors or reward whores. We are blessed with a loyal and talented user base of believers here on the steem blockchain, which should move the project ahead better than any investor or reward whore could ever do.
Wow. Seriously this is one piece of a great comment @novacadian
Im personally very interested with STO and future of blockchain and comments like yours are surely helping a log.
ps. Im glad to see that you're still around :)
Cheers
Piotr
So what you are saying is that there is no need doing airdrops?
Will all ICOs be rendered null?
No, you can still do airdrops. STOs are still upcoming and I don't think many legit ICOs will fold. Just the scam ones who refuse to comply with the local jurisdiction.
Well here is the way I see it. Bitcoin was introduced to stop the regulation of money and take the power away from centralized banks and out of the hands of government. Putting the power back into the hands of ordinary people. But of course now it has been hijacked by the big money people again. Having said that the small investors that just want to move money across boarders without restriction can still do that. Although their money is at risk, they can still save by not having to exchange currencies. Therefore I am against regulation. People shouldn't be investing to make money but to secure a system whereby they are not controlled by big corporations or heavy taxes. If it is regulated and people start getting paid in crypto then we have a system that is worse than fiat. Because your funds can be tracked and held to ransom.
Thanks @crypto.piotr For sending me the link to this post.
Well @andygem there is a theory that if you shared all the money in the world equally to everyone, in 5 years, the money would return back to the big money people. Many early adopters aren't sound businesswise, just lucky. Some quickly sell and bolt at the first spike. The big companies use FUD to drop price and buy in.
Regulation is anti-freedom but we have to look at the pros and cons of this freedom. Not everyone has good intentions. How do you ensure the safety of investors from scammers without rules?
Yes I too have heard this theory, but it is just that .maybe put about by rich folks that dont want to share their ill goten gains. I would prefer to have a little more faith in my fellow man. I would advocate that all of a persons needs are met by the government. Shelter food water and all the necessary amenities that would be a start. There should be no homeless and no starving people on theis planet in the 21st century. Utopia I know but it should be the aim of all civilised people. As for investments in currencies, when you get paid in Fiat you dont expect it to grow in value in fact the opposite would most likely be the case. So why should we expect crypto to grow. All we need is a way to trade with each other without interference from outside forces eager to take what is not theirs.
Posted using Partiko Android
Lol, the government is always looking to take more of your money
And isnt that a fact.
Posted using Partiko Android
Well said, Andy, very well said indeed.
In the immortal words of P.T. Barnum, "There's a sucker born every minute". It is absolutely not right that we, as reasonably well-educated, reasonably well-informed, reasonably intelligent adults, should have our freedoms restricted in order to (allegedly) protect the suckers from the consequences of their own foolishness.
@redpossum true, but harsh. We have to assume there are innocent people new to crypto. They can't just be called suckers, we have to protect their interests as well.
Boom... Thanks for getting what I was trying to say in a very long winded way lol. Its not an investment scheme its a peoples currancy 😎😎
Posted using Partiko Android
Great expression of thought on STOs @ulqu3
Generally, I am afraid that cryptos would end up becoming more centralized due to government regulations but I think its a small price to pay rather than remaining in 'wild wild west'.
I have lost a reasonable amount of money in some scam ICOs and it hurts!
Regards to @crypto.piotr
Sorry about your loss. That's the downside of ICOs, you really can't tell from first glance who is legit. This is why we all have to do our own research and not depend on media hype or Shiller advice.
Well said!
Oh it must really hurt @straighttalk :/
You can sure say that again...lol