INITIAL COIN OFFERINGS(ICOs) VS SECURITY TOKENS A COMPARATIVE ANALYSIS

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The initial coin offerings and security tokens are a newly introduced or a new generation fundraising mechanism created and ushered by the introduction and application of the block chain technology.

Whilst the initial coin offerings and the security tokens both serve the same purpose of raising funds and capital there exists some distinct features and characteristics not forgetting regulations as well as advantages which sets them apart and these characteristics will be comparatively analyzed.

WHAT IS INITIAL COIN OFFERINGS (ICOs)

The initial coin offering serves as a public fundraising mechanism which companies use to issue digital token to investors in exchange for cryptocurrency, preferably Bitcoin or Ethereum.

The issued token can be used for various purposes which may include governance tokens for voting authority and utility tokens for accessing and attaining services.

The use of initial coin offerings became popular and more preferable to the traditional fundraising channels and mediums because of their accessibility allowing it's user companies and startups to reach investors, donators and benefactors on a global scale something which the traditional fundraising channels could never have been able to offer.

WHAT ARE SECURITY TOKENS

Unlike the ICOs, security tokens are mechanism that offer ownership rights for an underlying asset such as a real estate or even equity.

Security tokens unlike ICOs which derive their value by exchanging digital tokens for cryptocurrency derive their own value from other external assets and these assets are liable to security regulations and requirements.

Where concerns may arise about investor and benefactor protection in ICOs it is not a problem or concern when making use of security tokens, security tokens enable fractional or partial ownership,of traditional assets seeing as it is a just like NFTs and tokenizes it assets.

ANALYTICAL COMPARISON

In terms of regulations, initial coin offering operates without strict regulatory requirements or guidelines which in itself is not all bad but it those impose a certain amount of risk on the investors and benefactors which is why there is global struggle ongoing to mitigate this risk and establish guideline on which th ICOs will operate on.

Unlike the ICOs the security token is liable to strict security regulations and requirements and therefore expects and requires users to follow, obey and comply to the set registrations and disclosure. This regulations mitigate any risk on investors and ensures they are protected.

In terms of market liquidity, bascically initial coin offerings are facing liquidity challenges which arise as a result of it lacking secondary market liquidity and therefore it's tokens are often traded on unregulated exchanges.

Unlike ICOs security tokens benefit from increased liquidity seeing as they make use of and are compliant to regulated trading platforms. Security tokens leverages the block chain technology and also Smart contracts and therefore possesses an automated compliance feature and more efficient trading settlements and exchanges.
And not forgetting that security tokes also allows for fractional and partial ownership of its assets and hence increasing its liquidity.

*CONCLUSIVELY *

In conclusion, although both initial coin offerings and security serve the same purpose of fundraising when analysed there are differences which arise as a result of the characteristics and features in terms of regulations, investor protection and market liquidity.