Security Tokens Picking Up but Still Reserved for Wealthy Investors
Security tokens, a new type of digital assets, are moving away from the democratic model of the ICO but remain reserved for large-scale investors.
Security tokens and specialized exchanges are starting to emerge as the next big thing in the digital asset ecosystem. However, there are indicators that this type of investment would remain accessible for a small group of investors and would probably not trade on mainstream cryptocurrency platforms.
Security token offerings (STOs) are taking center-stage, Bloomberg reported, going on to note that most projects currently remain reserved for rich investors as they require a significant minimum purchase. In the case of Neufund, the tokens were available for buyers with a 100,000-euro stake or higher.
In the US market, limiting an STO to accredited investors allows a project to skip the rigorous safeguards aimed at protecting retail buyers. Experts still consider STO projects risky as companies keep using the startup model, and the earnings depend on a business that is yet to establish itself.
STOs are also spreading at a slower pace compared to initial coin offerings (ICOs), which were an almost daily occurrence in 2018. Additionally, there are still only a handful of exchanges where these tokens can be traded, meaning that investors may have to wait to resell their holdings.
Digital asset proponents have noticed that STO project supporters sometimes aim to differentiate themselves from the chaotic past of the crypto markets. While new technologies enable far more agile transfers, storage, and trading, regulations occasionally stifle their potential, according to software expert Jesus Rodriguez, who serves as a director at Investor Labs.
“For all the issues with ICOs, they validated the Ethereum network and showed that it was possible to create new forms of economics in applications not to mention that they were a few successful ones. No ICOs, no STOs. The security token space is going to evolve guided by technology breakthroughs that are pushing the boundaries of regulation and many of the traditional principles of the securities industry will be reimagined with programmability,” Rodriguez wrote in a blog post.
For now, the biggest obstacle remains the lack of exchanges. Security tokens will have to rely on the tZero platform in the USA. Other markets, like the promised Extauri in Europe, are still in the pre-trading stage, expecting to launch within a few months.