The ICO market has cooled down considerably in the face of concerns over frauds and scams as well as regulatory issues. The article discusses the rise of security tokens as a solution to these issues.
Initial coin offerings have only recently come into the light as a major source of capital for unfunded projects. According to stats, a staggering $5.5 billion was raised for projects in 2017 with nearly 300 projects announced. In 2018 to date, the number of listed ICOs has decreased to just over 200 but provided $6.3 billion of funding. With almost an entire quarter to go, funding amounts towards active projects are expected to double by the end of this year. According to reports, ICOs raised $4.6 billion in the first quarter of 2018, or 85% of all funds in 2017.
The Big ICO Problem
Not surprisingly, a large sum of these projects turned out to be completely fake and resulted in the theft of an estimated $2 billion in 2017. This phenomenon, coupled with cryptocurrency exchanges getting hacked in increments of millions of dollars was thought to dampen the sentiment in thousands of funding projects.
Popularity around the idea of international currencies drew attention from just about every government in the world. The fact that people were still willing to invest thousands of dollars in the absence of regulation cannot continue to go unchecked as the frequency of scams will only increase.
In fact, the United States Security and Exchange Commission implanted a fake advertisement for an ICO all over major crypto media and exchange platforms back in May of this year. The results in terms of clicks and traffic to the site was undisclosed but redirected hundreds of thousands of users to investment education tools.
Although the massive increase in ICO crowdfunding prompts major concern, it provides assurance to those advocacy groups across the globe who believe in a different future of equity financing.
It’s no secret that investment bankers do some of the most rigorous paperwork to earn millions of dollars at a time; however, they provide the assurance and backing of Wall Street and the federal government. Online stock trading, bankers, and the like are all regulated – though not necessarily without fraud. This is what the ICO market needs to become legitimate in any real investor’s eyes: a digital assets financial hub and government backing.
Year of the Security Token?
Governments around the globe have accepted that they may never be able to completely eliminate the initial coin offering because it is ubiquitous across the internet. The solution – provide the necessary infrastructure to allow customers to utilize the advantages in investing with security tokens; without the fraud.
Investing on a blockchain does present worthwhile advantages, including the global access to markets 24/7, while eliminating the middleman to provide higher cost-effectiveness in accessing capital. With these improvements, a completely immersive security coin market could provide higher liquidity, while eliminating back-office jobs due to having programmable equity.
Only time will tell how and which country decides to implement security tokens first. The island nation of Malta praises blockchain innovation and has approved legislation detailing the formation of a new watchdog that will oversee anything related to digital financial assets.
Regulated markets and exchanges have yet to be alongside their custodian/wallet counterparts. Creation of similar infrastructure under one entity would be essential in promoting an international exchange. Projects by the tZero, Polymath, and Open Finance Network have scratched the surface at developing the necessary infrastructure, but are not quite there yet.