Will Consumer Token Offerings (CTOs) Emerge as the New Crypto Trend, are STOs Already Outdated?
To say that the crypto space is advancing rapidly is an understatement. To prove this, all that we need to do is look at the evolution of token sales and all the different models through which the act of selling new coins has already gone through.
At first, there were Initial Token Offerings (ICOs), which were a major hit back in 2017. However, the ICO model was found to be flawed, as it is extremely unregulated and very risky. It was replaced in late 2018 by STOs (Security Token Offerings), which was much more compliant with regulations. In addition, this model brought tokenization of real-world assets, which ensured that investors' new coins would actually hold value.
Now, however, it appears that the market has already moved on from this model as well, as a new trend started emerging. The name of the new trend is Consumer Token Offering, or CTO.
What makes CTOs better than STOs and ICOs?
As mentioned, STOs came as a significant improvement after the ICO fiasco that led to scams, as well as countless weak projects that never had any future to hope for. It was much more regulatory-friendly as well, and its coins held real value.
However, one major problem with STOs is that the coins were only sold to accredited investors. This is hardly a proper way to sell products aimed to be held and used by consumers.
This does not make STOs bad, however. They can still be used for limited groups, which will likely include institutions willing to invest in cryptocurrencies. However, CTOs come as an improvement on this model as well.
According to Joseph Lubin, the founder of ConsenSys, CTOs would sell tokens that would not be considered securities. These token sales already have a blueprint to follow — one laid out by ConsenSys-funded Civil.
Civil is a journalism network based on blockchain technology, and it already successfully re-launched the sale of its own consumer token only a week ago.
This was a re-launch of a token that saw its initial launch in October 2018, although the launch was unsuccessful back then. Now, both companies took a more cautious approach to CVL token sale, which is open to everyone around the world, accredited or not.
The design of the token leaves no doubt when it comes to the way it was supposed to be used, meaning that it is clear to everyone that the coin is not an investment instrument.
Lubin added that the current plan is to continue the development in a more restrained way. In other words, the companies plan to release software that requires a token in order to work.
The idea behind the plan is that tokens will only serve as an incentive for people to participate in open platforms, which is an innovative and transformative approach.
How might the regulators react?
The US SEC has a history with the crypto space, and it mostly believes that cryptocurrencies are securities. This, of course, does not include Bitcoin and Ethereum, as the sec itself admitted. However, this leads to the question — how will regulators react to the new token sale model? Will they agree that this is not an investment instrument?
According to Lubin, they will. He based his opinion on the SEC Chairman Jay Clayton's comments that BTC and ETH are not securities.
These comments support the June 2018 analysis published by Director William Hinman, which argues that the two largest coins in the crypto market do not fall under the category of securities, and if the SEC Chairman agrees, there is a very likely possibility that the SEC will think the same about CTOs.
The main idea is that tokens that are properly structured, properly marketed, and have a clear use case — cannot be securities. The developers will not claim that people who buy the coin have the potential to see large gains in return. Instead, buying the token will allow them to “read news from ethical newsrooms.”
Lubin further claims that CTOs are what ICOs should have been in the first place. They are to serve for a way for crypto firms to sell software that can be used with digital coins. The shift towards a new, trustworthy model is particularly important these days when most crypto community members are highly skeptical of token sales.
Lubin understands this, and he said that the ICO model was out of control, as well as the entire 2017 was. It was filled with bad projects, good projects, and even scams.
In the end, the crypto market ended up being disappointed with ICOs, and the regulators around the world cracked down on them, standing against crypto startups. This had a purpose, as it discouraged scammers and eliminated bad projects, while the good ones are still appearing.
Civil is one of them, and even though its original token sale was unsuccessful, the experiment is ready to start anew, and the platform managed to raise $315,000 after selling 1.5 million CVL in a single week.