The ICO (Initial Coin Offering) does not go through its best, therefore, some companies are beginning to “transform” their initial offers in STO (Security Token Offerings), a solution that does not offer sufficient confidence in investors.
What are security tokens?
A cryptographic token that passes the Howey test is considered a security token (if not the pass, it is considered a utility token). These usually derive their value from a negotiable external asset. Because tokens are considered a guarantee, they are subject to federal values and regulations. If the ICO does not comply with the regulations, then they could be subject to sanctions.
What is Howey’s test?
It consists of denominator “investment contract” to something if it meets the following criteria:
- Es una inversión de dinero.
- La inversión es en una empresa común. It is an investment of money.
- The investment is in a common company.
- There is an expectation of earnings from the work of the promoters or the third party
If the token meets the three criteria mentioned above, then it is considered a security token.
But … and that’s it?
No, security tokens are subject to federal security regulations, therefore, in the US. In the US, security tokens must comply with these regulations:
- Rule D
- Regulation A +
- Regulation S
Rule D will allow a particular offer to avoid being registered by the SEC, provided that the creators have completed the “Form D” after the securities have been sold. The person offering this security may request offers from investors in accordance with Section 506C.
It requires a verification that the investors are effectively accredited and that the information that has been provided during the application is “free of false or misleading statements”.
This exemption will allow the creator to offer security approved by the SEC to non-accredited investors through a general request of up to $ 50 million in investment.
To comply with the requirement to register the guarantee, the issuance of the A + Regulation can take much longer compared to other options. For the same reason, the issuance of Regulation A + will be more expensive than any other option.
This happens when a security offer is executed in a country other than the US. UU And, therefore, it is not subject to the registration requirement under Article 5 of the 1993 Law. Creators must still comply with the security regulations of the country where they are supposed to be executed.
NOTE: The above summaries should NOT be interpreted as legal or investment advice, and you should consult a lawyer for any questions you have or action you want to take.
Elimination of intermediaries
With all this, the company is free to issue its tokens, avoiding intermediaries and streamlining their projects and investments, but the elimination of intermediaries leads to the transfer of responsibilities to the buyer or seller in the transaction.
These intermediaries, that is, the financial institutions, are those that fulfill a large number of important functions in the ecosystem, such as the signing of contracts, the preparation of marketing materials, the solicitation of interests of investors, the insurance of high levels of security and compliance regulation.
Why are security tokens important?
Since the assets that are represented by the security tokens already exist in the “real world”, they act as a bridge between the inherited finances and the blockchain world. Differences between traditional ICOs and STOs:
Due to the lack of regulation for utility tokens, STOs frame and define the basic legislation for their issuance.
Improve traditional finance
Security tokens eliminate the need for intermediaries (banks), which reduces fees. In the future, smart contracts can reduce complexity, costs and jobs on paper.
The emission is accelerated
Traditional financial institutions have many intermediaries involved, which simply increases the execution time. By eliminating these intermediaries, the values allow a faster execution time for the successful issuance of security tokens. Due to this higher speed, security tokens are destined to become attractive investments.
Investment transactions today are extremely localized. Chinese investors find it extremely difficult to invest in private companies in the United States and vice versa.
By using security tokens, creators can market their offers to anyone on the Internet. This exposure to the free market helps increase the valuation of assets and finance higher investments.
Large number of investors
Since creators can now present their offers to anyone on the Internet, the investor base increases exponentially.
Reducing the Lawyers Service
In the future, security token projects will use smart contracts that will automate the functions of the service provider through the software. These functions are currently provided by lawyers who join the potential intermediaries involved in the project.
Eliminate manipulation of the institution
Because the number of intermediaries decreases drastically, the possibilities of corruption and manipulation by financial institutions decrease drastically and can even be eliminated from the investment process.
Secondary trading in security tokens will be simplified through licensed security token trading platforms and it will be extremely easy for investors to liquidate security tokens.
The publisher of bitcoiner.today is not responsible for the opinion or recommendations expressed by its editors. Investments in ICOs and STOs are high risk investments, you can lose all or part of your investment. Consult with an investment specialist before acting.
The difficult thing is not to learn, the difficult thing is to know how to teach.
Editor and coordinator of the free book “La era de las BLOCK punto COM”
CEO of bitcoiner.today