What is an STO (Security Token Offering) & 10 Reasons Why It Will Have a Massive Impact

Startup financing took a dramatic turn in 2017 as initial coin offerings (ICOs) burst onto the scene. In 2017 and 2018, more than $14 billion flowed into blockchain projects as investors looked to capitalize on crypto euphoria and the low barriers to entry made possible by the ICO funding model. It has been less than a year since the market for ICOs went bust, but the impact of the new crowdfunding model will endure for many years to come as startups look to tokenize real assets and leverage the power of the crowd to finance their next major project. But

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Thailand Is Opening Up to Crypto, One Step Closer to ICO and STO

Thailand is opening up to crypto, operating an ICO portal and considering the possibility of regulating security tokens.

Since July, Thailand and its Securities and Exchange Commission (SEC) have voiced their intent to legalize the local initial coin offering (ICO) market and open it to startups.

On Dec. 1, 2018, however, Cointelegraph reported that the Thai SEC declared Thai-related security token offerings (STOs) in international markets to be illegal and said that it will take appropriate legal action against companies that attempt to distribute STOs created in Thailand to overseas markets.

Tipsuda Thavaramara, the deputy secretary of the Thai SEC, reportedly said:

“The regulator will have to consider how to deal with STOs for issues such as share ownership, voting rights and dividend. At the moment, we have not decided whether STOs fall under the SEC Act or the Digital Asset Act, but it depends on the STO’s conditions and the details in its white paper.”

The government’s initial stance toward the approval of STOs in the local market contradicted the Thai SEC’s plans to legalize ICOs and allow companies to raise capital from investors in the public market.

This month, the Thai SEC reportedly approved the launch of the country’s first ICO portal, with plans to approve an ICO project in the near future.

Archari Suppiroj, the director of the fintech department at the SEC, said that the launch of the ICO portal could lead to the approval of STOs in the local market:

“The next step is for an issuer to offer security tokens in the primary market.”

Importance of STOs on foreign investment

Andreessen Horowitz, billionaire investor Peter Thiel’s Founders Fund and several more major venture capital firms have funded security token projects throughout the past year, betting largely on the value security tokens with high liquidity and fungibility can bring.

Josh Stein, the CEO of Harbor, which raised $28 million from Andreessen Horowitz, said that no major regulators and government agencies that the company has engaged in discussions with in the past several months have expressed a negative sentiment toward well-structured security tokens.

He said that, primarily because STOs are strictly regulated investment vehicles that are fully compliant with local regulations, governments are generally open toward regulating the security token market.

Placing an emphasis on the absence of legal boundaries between STOs and global financial regulations, Stein said:

“There’s a misconception that there’s a regulatory problem or that somehow the regulations need to change. They don’t. You need to comply with rules around the world. If the compliance doesn’t work, nothing else can happen. We have talked with a number of regulators in the U.S. and around the world. No one has given us negative feedback and no one has signed off on it, but our fundamental opinion is that we’re complying with the rules.”

Assets that are represented by STOs are real-world assets that are tangible and can be approved by the authorities. Security tokens merely offer a cryptographic representation and a proof of ownership, which, as a result, increase the liquidity and fungibility of the physical asset.

Traditional assets, like properties and artwork, can be represented by tokens using a cryptographically encrypted blockchain network, allowing investors to obtain ownership of certain assets by purchasing tokens.

Security tokens enable investors to purchase a portion of an asset without having the pressure of wholly acquiring it. One of the major reasons cryptocurrencies have appealed to millennials since early 2017 is the ability for young investors to invest a small amount in digital assets. With real estate and many other physical assets, it is not possible to do so.

Importance of STOs on foreign investment

Even when security tokens are utilized in complex deals, it is possible for the issuer to freeze trading on a certain security token asset upon the request of the government and move back to paper. While it leads to administrative expenses and reputational exposure, the government and the security token operator can cooperate to create a physical version of the security token if an issue were to arise.

With no major regulatory boundaries and with significant benefits in liquidity, fungibility and transportability, investors that have been involved in the traditional financial sector — like Hong Joon-ki, the CEO of over-the-counter (OTC) cryptocurrency exchange Cumberland Korea — have said that, eventually, various assets like artwork, real estate, sports teams and hedge funds will be tokenized:

“The global cryptocurrency sector will rapidly change to security tokens at an exponential rate. Venture funds, hedge funds, sports teams, artworks, real estate, and a variety of real world assets will be tokenized on the blockchain. Currently, the majority of financial institutions entering the cryptocurrency sector with the backing of institutional investors are driven by the potential of tokenized assets and security tokens. These institutions are expanding their operations rapidly by working with cryptocurrency researchers and blockchain technology startups.”

State of Thai regulation

Despite the shifting trend toward security tokens and the rising interest in tokenized assets in the global market, the current regulatory landscape of Thailand’s cryptocurrency market was nowhere close to permitting the distribution of regulated security tokens less than three months ago.

In July, the Thai SEC officially legalized registered ICOs, allowing companies to run token sales with guidance from the SEC. At the time, the Bangkok Post reported:

“The SEC will allow seven cryptocurrencies, used for initial coin offerings (ICOs), to be traded as trading pairs. They are bitcoin, ethereum, bitcoin cash, ethereum classic, litecoin, ripple, and stellar. All market participants, including ICO issuers, digital exchanges, brokers and dealers involved with digital asset transactions, are required to register with the SEC within 90 days of the effective date. […] The participants must also receive the Finance Ministry’s approval to conduct digital asset business.”

The implementation of a new policy regarding the legalization of regulated and registered ICO projects portrayed the willingness of the Thai government to facilitate the growth of local cryptocurrency startups, as long as their operations are in compliance with existing regulations.

More importantly, the decision of the Thailand SEC to facilitate the needs of blockchain projects to conduct ICOs showed the intent of the government to help lay the groundwork for ICO and STO projects in the future.

Conceptually, security tokens are similar to registered ICOs in the sense that both are cryptographically encrypted assets that operate under the guidance of the Thai SEC, given that only registered companies that meet the SEC’s criteria can run a token sale and that the sale is limited to accredited investors.

The open-minded approach toward ICO by the Thai government may translate to optimism toward security tokens, particularly because security tokens pose less threats to investors in the public market and to the government, since the authorities can exercise relatively strong control over security tokens.

Based on the policies the Thai government has implemented since early 2018, the roadmap of the government seems to be to address every major problem from the ground up, beginning with the basics.

In May, the Thai authorities waived a 7% taxation rate for individual cryptocurrency investors, relieving pressure from investors who invest through local digital asset trading platforms. In the following month, the Thai SEC released a framework for legalizing registered ICOs. Then, in August, the government approved seven cryptocurrency companies to operate legally in the country, officially giving them the ability to sustain their operations without facing banking- and regulation-related issues.

If the government determines that basic issues in the cryptocurrency exchange market, ICO market, and taxation are addressed and sufficient investor protection is imposed, then the government could shift its attention to emerging sectors within the broader cryptocurrency space, including security tokens.

Overall, Thailand is continuing to see some progress and changes in the local market in terms of regulation, adoption and growth. Merely eight months ago, ICOs were completely banned in Thailand, registered or not.

With the G-20’s lead on cryptocurrency regulation, Thailand and other regions in Asia are expected to regulate their respective digital asset markets with stricter policies, and as a result, the Thai government could eventually get to security tokens in the long term.

State of Thai regulation

But, in the near term, it is fairly unlikely that the Thai government will allow retail investors or individual investors to be involved in security tokens as of yet, especially during a period in which the United States, Japan and South Korea have yet to make any major move to adopt security tokens.

China’s ban on STOs

On Dec. 1, less than 24 hours after Thailand issued a warning against security tokens, China imposed a blanket ban on security token offerings.

Huo Xuewen, chief of Beijing’s Municipal Bureau of Finance, said in a roughly translated statement:

“The ICO model is being left behind for a new concept called STO. I want to issue a warning to anyone considering running an STO in Beijing. Don’t do it in Beijing — it is illegal. You can only engage in such activities with approval from the government. You will be kicked out if you do it.”

Seven days following the release of Xuewen’s statement, the People’s Bank of China (PBoC) officially imposed a blanket ban on security tokens.

At an internet finance forum in Beijing, Pang Gongsheng, the deputy governor at PBoC, explicitly described that the act of offering security tokens is illegal under existing laws in China. A rough translation of Pang’s statement reads:

“The STO business that has surfaced recently is still essentially an illegal financial activity in China. […] Virtual money has become an accomplice to all kinds of illegal and criminal activities.”

China has firmly opposed security tokens because of the country’s strict capital controls and laws that make it difficult for foreign investors to purchase properties in the country. The purpose of a security token is to increase the fungibility and transportability of a physical asset. Only China-based companies operated by Chinese individuals can purchase properties, and as such, security tokens in China offer less benefits.

The value security tokens could bring to Thailand

Although foreigners are not allowed to purchase land in Thailand, they are allowed to purchase apartments and condominiums, and obtain long leases for land.

For a foreign citizen to purchase a condominium in Thailand, regardless of the value of the property, minimal paperwork is needed to prove the investor’s identity.

For such deals, security tokens could simplify the process of settling payments and proving ownership through a digital piece of evidence that can also exist in a physical form.

Throughout 2018, Thailand has not been as aggressive as other major economies in Asia — such as Singapore, Hong Kong and South Korea — in appealing to cryptocurrency startups and bringing in talent for its blockchain sector. With practical regulatory frameworks in place and by allowing the creation of a new industry in security tokens, Thailand could obtain an edge over the rest of the cryptocurrency sector in Asia.

For now, Thailand and its financial authorities may not be ready to properly legalize the distribution of tokenized assets — at least to foreigners — and based on various factors, security token offerings will likely remain restricted in the near term. But, in the long term, Thailand may move toward supporting STOs, as hinted by Thai SEC Director Archari Suppiroj.

But, as Cointelegraph reported on April 5, the Thai government supported a blockchain-based remittance service provider, expressing its intention on facilitating the growth of blockchain- and cryptocurrency-related businesses.

California’s Thor Blames Regulators for its Own $21 Million Demise

Regulators can be blamed for just about everything. The team behind the Thor token is pointing the finger at them for the shuttering of their own operations. However, given Thor raised an impressive $21 million for its crypto project just last year, the excuse is falling on many deaf ears. There was speculation that something was amiss at the company before it made its announcement this week. For example, Thor reportedly locked its Telegram account so that users could not make comments. Some Thor token holders took matters into their own hands: because the main Thor Channel is muted we

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FOMO for Initial Exchange Offerings Is Getting Intense

FOMO for Initial Exchange Offerings Is Getting IntenseThe cryptocurrency industry gets older but does it get any wiser? Green candles have begun popping off across the board for the first time in a long time and suddenly it feels very 2017, complete with all the greed, FOMO, and manipulation that was synonymous with that era of excess. Never is this more evident […]

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From Kucoin Spotlight to OK Jumpstart: Initial Exchange Offerings Analyzed

From Kucoin Spotlight to OK Jumpstart: International Exchange Offerings AnalyzedInitial coin offerings haven’t died: they’ve simply rebranded as initial exchange offerings (IEOs). From Huobi to Okex and Bitmax to Bittrex, the number of crypto exchanges hosting token sales has proliferated. In a week where Kucoin has entered the ring with its Spotlight platform, we take a deep dive into IEOs: the good, the bad, […]

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Prediction Startup Numerai Raises $11 Million in ICO

U.S. prediction market startup and hedge fund Numerai raised $11 million in an ICO to launch its Erasure project.

American prediction market startup and hedge fund Numerai (NMR) has raised $11 million in an initial coin offering (ICO) to launch its project Erasure, Numerai tweeted on March 21.

Introduced in late 2016, Numeraire network provides a blockchain and cryptographic token-based ecosystem for incentivizing anonymous data scientists to create predictive models. Based on the Ethereum (ETH) blockchain, Numeraire tokens are used in trading market predictions on the startup’s platform.

Numerai founder Richard Craib said that the funds from the recent ICO will be mostly spent on hiring engineers for Erasure, the decentralized unit of Numerai’s marketplace, Coindesk reports.

Announced in October 2018,Erasure is reportedly scheduled to launch later in 2019. Once launched, Erasure will allow users to sell their predictions to any investment fund in the public network via the peer-to-peer InterPlanetary File System (IPFS), and directly connect their crypto wallets to the Ethereum-based marketplace, Craib told Coindesk.

While Numerai-based prediction models are mostly focused on traditional assets at the current stage, the launch of Erasure will enable predictions on any asset, Craib added.

The ICO round was reportedly led by VC and private equity firm Placeholder, and crypto investment company Paradigm, founded by Coinbase co-founder Fred Ehrsam.

Following the news, the price of the Nomeraire token jumped almost 19 percent, trading at $5.77 at press time, according to data from CoinMarketCap. The token is exposed to traders on five crypto markets: Bittrex, UPbit, Poloniex, DDEX, and IDEX, and has a market capitalization of $7.7 million.

Recently, Binance Launchpad, the token platform of major global crypto exchange Binance, completed a $4 million sale of Celer Network (CELR) tokens in under 20 minutes.

South Korean Kakao Corp’s Ground X Plans to Extend ICO After Raising $90 Million

The next phase of the fundraising could occur this week, an executive told Bloomberg, on behalf of the company’s blockchain project.

The crypto unit of South Korea’s largest internet conglomerate Kakao Corp will repeat its initial coin offering (ICO) after netting $90 million from investors, Bloomberg reported on Mar. 11.

Klaytn, the blockchain platform which is the responsibility of spin-off firm Ground X, will now seek to raise another $90 million as soon as this week. In December 2018, Kakao had first announced that it was planning to raise around $300 million through Ground X to develop its own token.

According to Jason Han, CEO of Ground X, IDG Capital, Cresendo Equity Partners and Translink Capital were some of the venture capital and private equity funds to participate in the ICO round.

Game developer Wemade Entertainment Co. and Chinese travel agency Zanadu are among the 26 companies that will run their applications on the Klatyn platform. Han also noted that Kakao is considering adding one of its own services to the platform, although this has not been confirmed. He told Bloomberg:

“There’s going to be a wide spectrum of services […] we’re continuing to have conversations with Kakao.”

The company, which currently has 65 employees, also plans to hire more as the launch gets closer. Han noted that the delay in the launch, which was originally scheduled for 2018, has been due to more development needed on the platform.

As Cointelegraph reported, the internet giant managed to circumvent increasingly strict regulatory policies in both South Korea and elsewhere by ensuring its ICO tokens were only available to registered, vetted private investors.

At the time, local media said the company had almost hit its intended initial investment target of $300 million from a range of participants, including a Chinese venture capital firm.

The continued success comes as South Korean lawmakers continually monitor the country’s zero-tolerance policy to ICOs, which became illegal in 2017. Ground X is headquartered in Japan.

Last month, Kakao revealed in its latest earnings statement that expenditure on new technologies, including blockchain, topped $57 million in Q4.

Token Development Using the Bitcoin Cash Network Kicks Into High Gear

Ever since various token implementations were introduced to the Bitcoin Cash (BCH) network, the infrastructure has been significantly developed in order to advance the BCH-fueled token ecosystem. In the last few weeks, projects like Wormhole and the Simple Ledger Protocol (SLP) have seen a significant amount of token creation, alongside a variety of wallet support […]

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Mt. Gox CEO Claims the Coinlab and Brock Pierce Deals Never Materialized

Mt Gox CEO Claims the Deals With Coinlab and Brock Pierce Never MaterializedOn Feb. 19, the former CEO of Mt. Gox, Mark Karpeles, gave an interview on the Youtube show “What Bitcoin Did”. In episode 76, Karpeles discussed the platform’s insolvency, Coinlab’s monstrous claim for $16 billion, and Brock Pierce’s attempt to revive the defunct exchange. Also read: Mt Gox Restitution Process Frozen Due to One Man’s […]

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Company Evades SEC Penalty Despite Illegally Issuing Security Tokens

Company Evades SEC Penalty Despite Illegally Issuing Security TokensThe U.S. Securities and Exchange Commission (SEC) has decided not to impose a penalty on a company that had issued security tokens without its approval and without qualifying for an exemption. The company raised approximately $12.7 million. Also read: SEC Chair Explains Key Upgrades Needed for Bitcoin ETF Approval No Penalty The SEC announced on Wednesday […]

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Court Reconsiders Ruling After SEC Proves Tokens Are Securities

Court Reconsiders Ruling After SEC Proves Blockvest Tokens Are SecuritiesAfter failing to convince a federal court regarding the nature of Blockvest tokens in the previous hearing, the U.S. Securities and Exchange Commission (SEC) has finally convinced the same judge that these tokens are securities. The agency alleges that the firm and its founder made several false claims regarding their token’s regulatory status. Also read: SEC […]

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