Probably, even those who consider the cryptocurrency market to be something unfamiliar and incomprehensible have heard about such thing as Initial Coin Offering(ICO). Last year, Securities and Exchange Commission (SEC) – the main supervising and regulating authority of the American stock market – harshly criticized this fund raising method. SEC representatives believe that ICO offers almost unlimited opportunities for fraudulent actions.
A new fund raising method The Overstock Company CEO Patrick Byrne suggested a completely new way to raise funds on the crypto market as a more beneficial alternative to ICO. Byrne called this method STO (security token offering).
Last week, Overstock announced it was investing $2.5 million in a car manufacturing company Elio Motors. The manufacturer specializes in three wheelers. Given that Elio Motors representatives announced introduction of ElioCoin token, Overstock's motivation is clear. By launching this token, the Elio Motors management makes it clear that they are planning to hold STO instead of ICO. A trading company Jones Trading will assist in bringing this automaker's plans to life.
Patrick Byrne said in an interview that the Elio Motors initiative would become a completely new business model in the United States.
According to Autonomous Next, within last three years, ICO was used to raise a bit less than $10 billion
According to Autonomous Next, within last three years, ICO was used to raise a bit less than $10 billion. This amount attracted attention of SEC representatives, who believe that ICO is an ideal method for fraudulent actions. SEC has even closed down several projects.
ICO operational scheme is similar to crowdfunding principles. This is especially true for utility tokens. They offer no profit on dividends and provide no opportunity to influence important decisions. Their key function is to provide access to services. Is also should be said that in most cases, these tokens have no back up.
In case of STO, tokens are always backed by company assets. Experts believe that in this case, token functionality will be similar to the opportunities provided by shares. At the same time, application of blockchain technology guarantees that they will remain "programmable".
In spring 2018, the SEC Chairman Jay Clayton announced that his organization treated ICO as stock offer. Now, STO makes it easier for emitters to meet the SEC requirements. This is due to the fact they actually trade in stocks.
The need for alternative fund raising methods on the cryptocurrency market is driven by disreputation of ICO. Many investors, who aimed at working honestly, didn't want to get involved in this reckless scheme due to a high fraudulence level and a large number of weak players.
According to Byrne, STO is a completely new mechanism that will make it possible for the market to take a few steps forward and forget about ICOdisreputation.