Technology

What are STOs and How to Vet Them

By George Waller, CEO, and Co-Founder of BlockSafe Technologies

We are watching the blockchain industry transition from its Wild West days into its Industrial Revolution. After Ethereum was created we were presented with the most radical fundraising alternative in modern history: the Initial Coin Offering. Suddenly it became possible for projects to raise millions of dollars in relatively short periods, bypassing VCs and offering very attractive investment opportunities to the everyday crypto investor. Coins were launched, money was made, money was lost, and crypto’s Wild West had begun.

The news of this “easy money” hit the ears of the bad actors; the scammers, the incompetent, the crooks. Pump and dump schemes dumped all their tokens immediately after the ICO, others just took the money and ran. Some promised more than they could ever deliver, others offered “utility tokens” with no function at all. Many lost money, some lost it all. It was clear it was time for the SEC to step in and rein in this runaway locomotive loaded full of pioneers of industry, explorers, and bandits.

The SEC’s pending regulation of the crypto markets doesn’t spell the end of the scam projects and bad coins, but it does mean that now we understand how to do it correctly. We’ve been given guidelines and we are beginning to see projects with better credibility than we ever have and platforms/protocols to support them.

Today’s security tokens are considered to be governed by the same rules and regulations established for traditional security vehicles in order to be SEC compliant. This is not just good, but critical for a growing industry. Financial regulation is the basis for minimizing scams, protecting investments and providing a clear path for legitimate blockchain businesses to legally raise money. We expect that regulation will bring far more capital to crypto, and open this emerging industry to large-scale investment. Some of us saw this for the opportunity it was, a chance to utilize this new technology in a safe and secure manner.

SEC Compliant STOs

All STOs are ICOs, but the same isn’t true the other way around. STOs, or security token offerings, are still token offerings however they are actual financial securities backed by something tangible like the assets, profits, or revenue of the company. They are offered only to accredited investors in the US, who are assumed to have the knowledge and experience to make educated high-risk investments. A compliant security token offering requires advisors, legal teams, and months of thorough examination. In contrast to many ICOs which can be launched with a website, a whitepaper, and a laptop… and many were.

KYC stands for Know Your Customer and AML is Anti Money Laundering. These are essential terms to know because they represent a set of standards and processes that ensure banned or sanctioned parties aren’t participating in the ICO/STO.

STOs are indeed regulated but the expectation still exists that each offering will be thoroughly researched and vetted by investors just as would be done with IPOs or private placements. The pending SEC crackdown has many taking steps in advance to ensure compliance and has given rise to issuance platforms. Issuance platforms are protocols and companies who ensure that all security requirements are met and are a great indicator for anyone considering participating in an ICO.

A common term in our industry is DYOR, or do your own research, and this is still absolutely the case, however, we can all have just a little more faith in the projects we participate in.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.