Are Security Token Offerings (STOs) Crypto Markets’ Next Big Thing to Bypass Forming SEC Guidelines?
Are security tokens going to be the next big thing? Well, everyone keeps on asking but nobody has the answer. But there is something to be said about this new buzzword in the crypto market.
To start with, saying that 2018 underperformed is an understatement as the last year has been a tempestuous year on the price as well as the regulatory front.
Bitcoin and Ether were declared as not securities by SEC Director William Hinman. This certainly came as a reprieve but the crypto industry still needs a clear classification of what exactly is considered a security token, Now, apparently, SEC will issue clear guidance on this issue.
Amidst the regulatory uncertainties, blockchain startups are taking a shift from Initial Coin Offerings (ICOs) by moving towards security token offerings (STOs). And according to the word on the street, it just might be the new big trend.
Blockchain fundraising started with utility tokens – a business model where a license has been acquired to issue and use a token on a platform that works as a currency to pay for services. Now, the startups are turning to STOs and everyone is wondering if this is going to be the magic formula.
Security Tokens: Moving Forward into 2019
For the starters, what are Security Tokens?
A cryptocurrency token that passes the Howey Test is a security token. The Howey test declares a transaction an investment contract which then subjects to securities registration requirement if, It is an investment of money, the investment is in a common enterprise, and there is an expectation of profit from the work of the promoters or the third party.
Now, coming into 2019, what legal issues are exactly that STOs will have to face?
If we take a look at the present picture, to the most part, STOs that are being initiated to accredited investors as private placement securities. But again these have their own problems regarding the use of tokens on platforms.
A few of the general considerations that need to be analyzed are accreditation status of the investors and lock up period of the tokens.
Also, a number of states have the requirement registration in order to start transacting. So, does this means, these blockchain companies will have to register as issuer dealers with numerous states so that they can transact in their own securities on their very own platform.
Another point of consideration is registration as an Alternative Trading System (ATS). The SEC has yet to provide any clear guidance so, at what point, a blockchain platform that is acting as a marketplace to bring buyers and sellers of security tokens will have to register as an ATS.
With the introduction of a new bill that will amend the Securities Act for cryptos, 2019 is looking to be an important year for STOs and as recently stated by Amedeo Moscato, DX's chief operating officer to CNBC.
“The crypto community has been talking about security tokens for well over a year now without much progress, so we think the impact will be huge.”