After a regulatory crackdown on digital crowdfunding campaigns, the value of the international ICO market has dropped significantly. As a result, investors are being driven towards a new type of crypto investment vehicle; security tokens.
ICO fever decreases
At the end of 2017 and the beginning of 2018, the popularity of ICOs reached an all-time high, but with many investors left disappointed with an increasing number of ICO failures, this interest began to drop. Claims were unsubstantiated, pricing was unrealistic, and some just disappeared with clients and investors money to be never seen again. Global ICO funding has decreased massively due to confusion around the stances of global regulators, with many being shut down due to offering tokens that were categorized as a security.
The problem with investing in an ICO is that it can be difficult to know what type of ICO token is being used; is it a utility or security token? A utility token is a tool, not an investment, whereas a security token is an investment in a specific project or company. If a particular token can be considered as a token under securities laws, then it will find itself subjected to a range of specific rules and criteria as specified by various regulatory agencies.
The US and Security Tokens
In the US, a recent ruling by a District Court Judge stated that ICO offerings fall under securities laws and that as such, unless the token on offer is without a doubt a utility token, it must be considered as a security token.
The ruling was the result of a case brought against Maksim Zaxlavskiy who had offered and ICO to investors with the promise that the tokens were backed by diamonds and real estate. The federal prosecution deemed that this meant the tokens were a security and that Zaslavskiy had offered investors a totally unregulated securities product.
The judge noted:
“Congress’ purpose in enacting the securities laws was to regulate investments, in whatever form they are made and by whatever name they are called…”
It seems now that regulated security products will become the next big thing for crypto investors, in part due to their regulatory compliance and the big potential for gains.
CEO of Desico, Laimonas Norekika, who is also about to offer retail investors the chance to invest in registered security products said:
“Tokenized securities are bridging the gap between traditional financial markets and crypto markets because they are aligned with everyone’s interest. Regulators want to protect the investors, investors want their assets tradable, and crowds from all over the world want to invest in the most promising startups at an early stage.”
Anthony Pompliano, the founder of Morgan Creek Digital Assets also stated that he believes that security tokens should be considered as digital assets and as such should be subject to federal regulations.