The securities-based token currency, the more widely known name is STO, has become commonplace in today’s cryptocurrency fundraising market. As we all know, the first token issue (ICO) gave birth to a new generation of tech enthusiasts looking for their currency to be released on the open market and offering lower prices.
Among them, STO came into being; so far its origin may seem harmless, but if you fully understand the ICO model and the traditional investment world, you will understand that STO is just the old-fashioned financial people in their capital world. Recapture a certain degree of control.
Note: For the purposes of this article, we classify ICO and token generation together.
This article explores the true meaning behind STO and the factors that lie when you consider STO.
YOU ARE SUCCUMBING TO THE PRESSURE OF VENTURE CAPITAL
In general, when you issue STO and securities tokens, you are giving in to venture capitalists and industrial investors. Their reason for not being interested in entering ICO is that their risk-reward model is much less effective. This is nothing more than basic common sense when you consider that they usually have to explain to the trustee, the board of directors, or some members of their business.
The ICO is entirely risk-oriented in terms of their standard model. Therefore, the risk-reward architecture is aimed at those who take the most risk and get the most rewards. That’s why so many people can see hundreds of times the benefits if they enter the ICO early.
In pursuing these “ venture capital” funds and trying to regain control of their lost status, venture capital firms have persuaded many companies to issue securities-type tokens instead of harsh ICO-performance tokens; thus ensuring that venture capital firms pass securities. Type tokens acquire some company rights and are able to use some power. At the same time, those who do the actual ICO control the entire company.
It’s worth remembering that most venture capital and financial companies hate ICO for a simple reason, that is, ICO means the end of their operating model. For a long time, venture capital firms have long demanded a large share of the company’s shares in exchange for early capital, and expect this company to achieve success. When the company does succeed, the venture capital firm will insert its own board of directors and distribute its shares to the people it thinks fit. In essence, the founder’s dream was abandoned for the needs of capital.
So when proposing the concept of STO to venture capital firms, they naturally love this idea because it helps them maintain their status. Under such circumstances, watch them take control of investment, innovation and guidance.
STO DOES NOT HAVE A SECONDARY MARKET
Until today, although many exchanges are planning, there are still no transactions in the secondary market. These exchanges, like the US and Chinese markets, are just a long dream for many people. In contrast, performance tokens are already well-functioning in these markets (subject to the control of various governments and exchanges), they have booming industries, and the current development of many exchanges actually transcends typical finance. mechanism.
As we all know, the STO exchange will be a broker. These brokers are subject to strict regulatory laws, including how much commission they can receive, annual filings, KYC reviews, and account maintenance. This affects the user in a number of obvious ways. For example, if I work with a stockbroker, these trades can be hampered by many obstacles. Just as most brokers try to make these transactions as easy, legislation often creates obstacles.
In addition, it is almost impossible for any exchange to be able to serve customers around the world in the STO market. It is almost impossible to keep up with the regulations of individual exchanges in each country, and the energy spent is much higher than the rewards, so a “global” securities exchange is almost impossible.
TO REGISTER A COUNTRY, YOU MUST REGISTER ALL COUNTRIES.
Where will you register your STO? To be a STO, you must actually register a token in one place, which means you are subject to a country’s laws, KYC principles, and government censorship. The government will naturally like this idea.
Let us take the United States as an example. When you fill out the written documents of Regulation D, A, C or any other securities, you are effectively providing all of your personal information to them. When the SEC (or any other regulatory agency) has all the information, it’s easy to track the company’s actions for taxation, prosecution, investigations, and more. When you are actually registered in the US, you put yourself under the law. At present, European companies cannot sell US securities without obtaining a license, just as you cannot sell European securities in the United States before obtaining a license. So because you become an STO in one area does not mean that you have applied global regulations.
For those companies that think they can become securities in one place but not in another, this is a real condolence. I will not register for exemption in the United States and then pretend that I am not a security in the UK market. I have signed a written document and submitted an application for securities to the government agency. Remember, if you are applying in the US, you must comply with US law. The SEC will ask you how to sell US-based securities to foreign self-employed individuals and what laws you follow in your local country.
Finally, it is shocking to believe that the number of people filing documents in the United States but not letting them become securities. When you apply for Regulation D, you are actually applying for an exemption. This means that you are indeed a security, but because of the way and objects you are about to sell, you are exempt from general application conditions. The securities law still applies.
When you file an application with any authority, you are already removing your decentralized road. The competent authority controls everything you do, whether it is a company, an individual or a project. It must be implemented in accordance with the laws and regulations of the country.
That means, while transmitting all of your information, you also let government agencies get all the information about your participants, and these people must be subject to taxes, laws, regulations, and the supervision of that country. It is like removing the spirit of true decentralization, isn’t it?
For continued text, see the article by Cal Evans on cryptoslate.com: https://cryptoslate.com/the-security-token-offering-sto-its-a-trap/