Security tokens – A new investor attraction?
It’s 2019 and new trends have been already popping up with significant importance. Security tokens are one among the new terminology that’s booming around after the acclaim of ICO tragedies. Many speculations are coming from the investor end and well this term is not as complex as everyone in the digital world talks like.
In this article, I’m going to explain to you about the following points,
- What exactly are security tokens?
- How do these tokens going to create a revolution in the cryptocurrency world?
- A note on Security Token Offering (STO)
- The investment point of view about security tokens
- What’s the future of utility tokens after the emergence of these tokens?
Security – The rookie in the blockchain world!
What are security tokens?
This question has been around for a longer period of time and here is the simplest explanation. Security tokens are the tokens offered by companies to the investors for what they invested in and is stored in the blockchain. It’s a perfect alternative and the definition can be split into two,
Here the security is an asset like the share, fund or other similar value on which an investor invests. And the token holds the equivalent value of the so invested asset.
Let’s make it even simpler with an example; you want to buy some share of a start-up. You invested your money and got a share to become a shareholder. A written agreement is made between the investor (you) and the organization. In STO (we will talk about it in the later part of this article) security is the part that replaces the shares and token replaces the traditional agreement.
A simple concept, isn’t it?
Let’s move on to the next part and understand its impact.
A new revolution begins – Solution to existing issues!
Security tokens are often called as regulated tokens that replace the existing legal issues. The persisting problems in the investment world can be driven away and no more false promises.
At the end of 2017, we have seen the dominance of cryptocurrencies and the all-time best price of Bitcoin. Investors found a fortune and until that period of time, not everyone was aware of these digital coins. Many altcoins are also available in the crypto market and people began to invest in them expecting good returns.
However, after the dominant side of these cryptocurrencies, a year after a “plunge” was the result. The prices slashed down.and this time the investors get to know about another version of these coins and that was the “volatile” nature of these digital coins.
Tokens were provided during the ICO events and the value of token depends on the currency’s market price. With such an unstable price altering nature, how can one invest in ICO and receive tokens in return? Secure tokens were the solution that everyone expected to hit as a saviour.
These types of tokens follow the required federal laws to provide a risk-free investment and stablecoins are a part of it to take away the volatile nature of cryptocurrencies. Yes, there is a link between the two new guns and it’s for the best.
These set of tokens are going to revolutionize the investment side by giving the regulation mode and a trustworthy global market is what it aimed for.
Is this the dawn of STO and the dusk of ICO?
As per reports from trusted sources, a sharp decline is clearly visible in ICO (Initial Coin Offering). Investors don’t trust ICO anymore and 95% of them were failure and scam! The trust factor burned down to hell and it’s more like say no to ICO.
Security Token Offering is more like the traditional investment scenario or an IPO but the only difference will be that the security is provided as tokens.
Say, it’s more like 1 share = 1 security token
The major part to consider is that ICO’s never follow any rules and regulations, but STO is regulated and follows rules to make sure you get what you asked for.
Like gambling, ICO’s are just pre-sales of tokens that don’t even have a proper value and its main focus is just fundraising. ICO’s are conducted even before a decentralized application is developed and because of that reason, the so acquired utility tokens cannot be used to buy utility as there ain’t exist the platform.
To be specific it’s more like gambling and there is no guarantee for your potential investment. However, investors can make use of the opportunity to buy these tokens and sell it afterward anytime as per investor preference.
As per SEC (U.S Securities and Exchange Commission) security guidelines and laws, a regulated and anti-fraud type of fundraising side is what they expect to see in the marketing world. Unlike ICO’s where sales are done for utilities or coins STO’s offer investment for security (shares, equity, etc.).
Security tokens – The investor favorite assets?
Here we go, after reading all the above information, you must have got enough idea about security tokens. If you’re an investor what would you prefer – a utility token (ICO days) or the security investment (STO)?
For obvious reasons, you will prefer STO’s over the ICO and you feel secure!
If you get governance and protection at every stage of your investment, even more than the traditional side, investing in security tokens is a preferable choice!
The other reasons why investors are attracted towards these tokens will be,
- Financial security is restrained with the regulations of SEC
- Tokenization concept is back to its core values
- A truly trusted global market is open for investors
- Liquidity and monetary values will be back to the equilibrium state
- 24/7 regulatory trading (yet to develop) is an added advantage
What’s the future phonetics – utility tokens or security tokens?
Talking about security tokens, what’s the future of the utility tokens? Let’s have a quick look at see what’s happening around us in terms of these two tokens.
Utility tokens as I mentioned earlier are not protected by any laws and just separate the terms – utility & tokens. Tokens are provided for utilities and later on, within this platform, the investors can use tokens to buy these utilities. Well, a platform does exist to trade the tokens so bought, and until now there is not trading platform exists in security tokens.
Utility tokens won’t disappear in thin air or overnight, it does have a value and with proper care from SEC, things will be better.
With security tokens which are more like owning the share or stocks in the form of token gives access to the abilities or authority of a shareholder. Profits will be shared to the investor and if the regulations are violated investors have to face penalties.
Security tokens are yet to show the full potential and in the coming days, we shall see that side.
So the answer to the question – utility or security tokens?
It’s complicated and security token has its upper hand over the utility tokens. It’s a new trend in the crypto world and still in the experimental scenario.
Let’s look ahead to see whether these tokens will dominate the market or not. Can this side bring back the trust factor to the cryptocurrency world? Wait & see!