Security Tokens, ICOs and Crowdfunding Platforms

Can the Security Token Offering be considered an evolution of the traditional IPO?.


A bit of history


The pursuit of alternatives to classic bank credit is a topic that has always populated the corporate finance scene.


Not going too far back in history, we can start our analysis at the dawn of the 2000s, when the first hints of crowdfunding could be found online.


The idea of a capital raising where the funder was the community that would have used the service had a major consolidation, in fact becoming the first serial method of raising money for small businesses and startups.


In 2016 there is the first evolution in the world of crowdfunding thanks to the advent of blockchain technology.


Initial Coin Offerings abbreviated ICOs were born.


For the first time, shares in companies are replaced with tokens. The popularity through the investor community was so high and the slowness of regulators has, in fact, exploded a new race to the hour.


Everyone wanted to participate in the new token issuances, everyone was lured into doing their own ICO promising big and fast raises that no one stopped to understand what these tokens really were.


ICO tokens were in fact issued as utility or payment tokens. They were not shares in the company.


Investors received early options to buy the products and services of the companies but never ownership of the shares of the company itself.


It only later became clear that ICOs were based on three pillars, little considered by investors:


  • Issuing companies had to represent blockchain technology and related infrastructure development;

  • The tokens issued were only relevant to the company's business model and not to performance;

  • Investors were not protected and therefore their contributions were classifiable as donations.


STOs come in


In 2018, with the need for a further upgrade, the strong belief that tokenization is the future gives birth to STOs (Security Token Offering).


The perfect blend of the advantages of crowdfunding together with those of ICOs, allow the minting of new tokens which represent the shares of the companies issuing them with all the rights and protections of traditional markets.


The constantly evolving technology on smart contracts allows us to say that STOs are a new form of IPO (Initial Public Offering).


International regulators themselves compare security tokens as normal securities and in fact only allow them to be traded by regulated entities.


This is why players such as Coinbase or other large exchanges, not being regulated, cannot trade STOs.


A relevant feature of Security Tokens is their immutable certification, via the blockchain, of the ownership of shares and any transfers.


Security Tokens take the world of securities into a new era. A world of "programmable securities" that guarantee specific rights that can be parameterised according to specific time frames. A world of securities that are immediately exchangeable and even used as currency.


A world where the investor is also the custodian of his own security.


The advantages of security tokens (ST)


  • Clearing and Settlement of Security Tokens can be done in minutes;

  • Tokens can be held personally. Brokers and Custodians are no longer required;

  • Security Token Offerings on blockchain ensure transparency of all transactions at all points of time, by providing a consolidated transaction ledger;

  • Clear regulatory status;

  • A new instrument of capital raising;

  • Immediately transferable, can be traded 24/7 on secondary markets on a peer-to-peer basis.

Recap


Security Tokens have changed the capital market landscape. It is a radical change that will bring further innovation, new rules and above all significant savings in the cost chain, retiring all the middlemen.


For more info please do not esitate to contact our team at sales@epheliagroup.com to discuss about your next issuance.