For the last two years in the crypto industry, initial coin offerings (ICOs) seemed to be the way to go with raising funds for a project. However, considering the substantial regulatory changes in the industry, research from South Korea shows that there may be a change in this path, leading to the use of security token offerings (STOs) instead.
During 2017 and 2018, ICOs were used as the primary way to launch a project and sell tokens, which were mostly Ethereum. However, it did not take long for scammers and cybercriminals to take advantage of these opportunities to allow themselves to make easy money, disguising themselves as the real thing.
Many ICOs were ultimately determined to be scams, considering the lack of actual project to fund. Regulations for every country became a demand, eventually leading the industry into the bear market that it still has not climbed out of yet.
Security tokens, unlike most crypto tokens, have been backed up by physical assets in the real world. Functionally, they run in a similar way to stocks, bonds, and derivatives, which means that investors can have more faith in a digital stake that they can see.
Business Korea recently reported that STOs seem to be the next major development for the crypto industry. They cited research from two locations – Chain Partners’ CP Research and Coinone Research Center.
CP Research commented that they are offering an opportunity for assets that tend to be difficult to liquidate, much like real estate or art. The Security Token Offerings infrastructure is already building strength for 2019, and the market is estimated to grow to $2 trillion by 2030 because of the change.
Their research showed that there’s already tokenization in venture capital funds and real estate. However, the current regulatory stance in South Korea could be a prohibiting factor. Their report shows that local authorities still view crypto and blockchain as two separate entities, which means that local companies may go elsewhere to launch STOs.
In the Coinone Research report, the firm said, “STOs which focus only on the liquidation of assets will eventually create a lemon market where only worthless assets are traded. Concentrating only on the possibility of liquidation is a dangerous thought.”
The big concern is that STOs could be the cause of another economic crash, like in 2008 with mortgage-based securities. This research was meant to help urge the government to make specific regulations that will govern STO, which puts the entire market in a good place.