There is no ambiguity on the ICO market being a huge success and there are several projects in the market that have a very strong hold. One of the key factors that are pushing the ICO market to such limits is the fact that there are no regulations, but this is very much bound to change at some point. It is highly expected that there be introduced a few regulations that could make it safer to invest with lesser risks of getting scammed. A strict framework is not necessarily a bad thing and it can greatly help sperate the good and the bad projects and also deter potential scammers. For a regular investor, it is important to weigh the risks and the gains of investing in an ICO before going forward to buy the tokens.
On the long run, certain guidelines and regulations are a must for the ICOs to continue, lack of which will result in trust issues, multiple high-level scams, and bad projects. ICOs are now one of the best ways of crowdsourcing a start-up, the Silicon Valley S05 shows a similar approach when in the co-founder realize the importance of Pied Piper’s computing credits and start issuing Pied Piper coin to raise enough money that they could skip the Series B funding. Similar to as it was portrayed in the Web Series, it cannot be said with certitude that a coin would pick up and be profitable, in fact, we’ve seen and invested in several coins that even failed to achieve the soft cap and eventually shut down.
Projects with dynamic funding goal can also have limited supplies and the tokens are distributed based on the funds received. It is possible to determine the funds received for a dynamic token supply by validating the price of these static tokens and it is also possible to limit the goal or time frame which removes a lot of hassle from the more common venture capital process.
Over the past few months, there have been huge fluctuations in the cryptocurrency industry and the ICO projects need to go through a due diligence process that can be more complicated than the current crowdsourcing platforms. As ICO is unregulated, the possibility of scams is high and in order to pacify a potential investor, the ICO projects need to offer them some level of protection. It is not complete enough for the start-up teams to be well aware of the blockchain architecture, but it is important for them to prepare offerings with valuable offerings to support their drive.
With ICOs going through regulatory issues and fraudulent feedback from the mainstream media combined with the low success rate, it is important to find more satisfactory means of funding a blockchain start-up that is more legitimate and trustworthy. To solve these issues, we believe that STOs might be the way to go.
While ICOs work by offering tokens or coins from companies for purchase as a form of crowdfunding, the STOs working in a similar way but with a slight bonus, you can purchase tokens during the offering and then trade, sell or hold them. However, since these security tokens are actual financial securities, the tokens are backed by either assets, profits, or revenue of the company. It is expected that in the second half od 2018 and in 2019, there will be a huge rise in STOs and might eventually out beat ICOs, the most important reason of choosing an STO over an ICO is the security for potential investors which reduces the chances of fraud.
When the ICOs are becoming increasingly necessary, it is justifiable that a few of these be implemented as an STO. Cryptocurrencies and CIOs must compromise with the existing framework of securities and thus STOs should be the new ICOs in the coming years. Even the big companies like JP Morgan are filing patents in blockchain and it is thus becoming clearer about the mainstream adoption of crypto as the big banks and enterprise platforms are getting involved. We’ve seen the decline of IPOs and the early funding for a start-up is becoming a major bottleneck for innovation. This has resulted in many start-ups going the ICO route and this could be the path for overcoming the bottleneck around the initial funding issue.
STOs also protect the investors from the pump-and-dump schemes that we’ve seen in a few ICOs, STOs are seen as more stable and legitimate than most ICOs as they can provide the investors with a reassurance from the very beginning that they won’t run into issues down the line. It is thus inevitable that the STOs that provide a greater security take over the ICOs that are very prone to scams and the fact that ICO ratings can be manipulated only adds to the concerns.
There is an increased recognition from the industry leaders that ICOs should morph into STOs and the Security Token Offerings will be a safer investment meeting the regulatory criteria and being more fraud-proof. While it is true that ICOs are risky, they can still reap in huge benefits and large chunks of profits, if you are planning to invest in an ICO you should certainly read our articles on the advantages of ICOs and the risks that are involved. It is very important to be very well educated about the ICO before making an investment decision, sometimes a quick look at the website and the whitepaper can help us separate a fake ICO from one of the good ones.