2018 was meant to be the year of security tokens. The number of projects seeking to launch security token offerings (STOs) would mushroom, we were told, and a string of accredited trading venues would emerge where these instruments could be exchanged. The release of two new reports into the STO market provides an opportunity to reflect on whether security tokens have lived up to the hype.
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The Quest to Securitize the World
When the utility token craze took off in 2017, raising billions of dollars through initial coin offerings (ICOs), skeptics predicted that the mania couldn’t last. Many of these so-called utility tokens, it was claimed, were actually securities, and it was only a matter of time until a lettered agency such as the U.S. Securities and Exchange Commission stepped in to call a halt to proceedings. In the event, the demise of the utility token has had less to do with enforcement, and more to do with market conditions that have made it virtually impossible for ICOs to raise funds. A string of underperforming ICOs, including several that were outright scams and others that simply failed to deliver, have blunted public appetite for this fundraising mechanism.
STOs have the potential to overcome several of the drawbacks to ICOs, including the regulatory uncertainty. Because security tokens represent a claim to an asset, such as equity, investors have a degree of reassurance that, in the event of the project faltering, they will have legal redress. This contrasts with utility tokens, which are sold on the understanding that they may be worth nothing and that holders have zero claim to any sort of assets. Two new reports from Hashgard and ICOrating.com provide an insight into the
