Overstock CEO explains difference between an ICO and Security Token Offering (STO)
Unlike ICOs, STOs will be backed by a tangible element, such as assets, profits, or revenue in a company.
Initial Coin Offerings (ICOs) were the success story of 2017. Coin offerings generated more than $6 billion in global startup capital throughout 2017. But are these fundraising efforts beneficial for consumers?
In an interview with CNBC, Overstock chief executive Patrick Byrne said that there’s a new, safer way to raise money in the cryptocurrency space. Security Token Offerings (STOs) are the name for this new funding model.
“The industry is distinguishing very clearly now between ICOs and STOS,” Byrne said.
An STO allows consumers to purchase digital coins or tokens as part of a public offering, just as they would in an ICO. However, unlike many ICOs, these tokens will be backed by a tangible element, such as assets, profits, or revenue in a company, according to Byrne. It’s like holding shares in a company, except with more versatility.
Byrne said that implementing the term STO suggests to regulators and enforcement agencies that issuers are being transparent about exactly what it is they are offering, that these digital assets are actually securities.
“The ICO craze of last year created a toxic waste dump of financial assets. To me, that world of ICOs is a superfund site,” he said. “What we’re developing is a mechanism so that there will be a legal way to go forward, and not create any new toxic waste.” Byrne added that what some ICOs were doing was “flagrantly illegal”.
In February, instant messaging service Telegram managed to raise $850 million in “purchase agreements for cryptocurrency” as part of a pre-sale funding round to develop its TON blockchain network. Telegram aims to raise an additional $1.15 billion as part of its public ICO, according to Bloomberg sources.
“I like [the idea of an ICO] because it just takes cost out of my system,” Fernandes said. “So I’m driven, not by trying to take over the world, but in the first instance, everyone buys in my ICO and I take out a lot of exchange risk, I take out a lot of settlement risk, etc. So there are many ways of how we are looking at it.”
Along with a slew of other projects, the SEC recently charged Centra Tech and its co-founders with fraud after the startup raised more than $32 million from thousands of consumers during its ICO in September 2017.
United States Securities and Exchange Commission (SEC) chairman Jay Clayton recently bolstered the regulator’s message to potential digital currency traders on the risks and regulations involved with ICOs. Clayton said that the SEC is currently examining several ICOs to ensure they aren’t violating securities laws. “Abide by the law. We’re watching, others are watching,” Clayton warned ICO organizers.
Cryptocurrency advertising has been a contentious issue for social media users and platforms since market prices soared to all-time highs at the end of last year. Many companies and websites have banned crypto-related promotions and advertisements as a result of scams, pyramid schemes, extortion and trading volatility.
Overstock revealed the prototype for its tZERO trading platform earlier this month. It will support its unreleased security token that is currently being sold via an ICO. The SEC placed tZERO’s ICO under review in February.
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