BY Fintan Ng - November 19, 2018
STOs expected to grow
Security token offerings (STOs) may be the way to go for blockchain startups looking to raise funds given the clampdown on initial coin offerings (ICOs) and investor caution over risks linked to such fundraising.
ICORating CEO Sasha Kamshilov says in a quarterly report on ICOs that US securities regulators’ clampdown on such fundraising from this February has led to an increase in interest in STOs.
The US Securities and Exchange Commission, which published a report on ICOs in July 2017, classifies most tokens as securities and subject to regulation.
Kamshilov expects STOs’ share of the crypto market to grow quickly from the last three months of this year onwards from the current tiny share.
“STOs provide a smarter way of investing and raising finance as compared to traditional ICOs because they address issues of lack of transparency, unknown territory for regulation and a lack of regulation itself,” he says.
The safety and clarity of regulation may also attract a significantly larger number of potential investors as a vast number of ICOs are either scams or scam-like.
Meanwhile, Kamshilov noted that ICOs were not as successful in the third quarter ended Sept 30 compared to the first two quarters of the year.
While investments continued into ICOs, issues such as unsatisfactory market performance of tokens that have listed and stricter regulation have led to less interest in them.
Kamshilov says that a number of startups that conducted ICOs between 2017 and early 2018 and were strongly hyped are expected to fail because they are scams, conflicts between founders, failure to deliver promised technology or solutions offered not being widely adopted.
The report revealed that US$1.82bil was raised by 597 startups in the quarter under review compared to US$8.36bil in the previous quarter raised by 827 startups.
Of the ICO projects announced in the quarter, 57% were no able to raise more than US$100,000 and only 4% were listed on exchanges.
Financial services remained the most popular industry with the greatest number of projects announced, similar to the previous quarter.
Around 87% of projects conducted their ICOs with the intention of creating a decentralised application (dApp) on a third-party blockchain, of which two-thirds of all dApp ICOs were unsuccessful.
Tokens generated a negative 22% median returns and nearly four-fifths of them were traded below ICO price, according to results from the latest quarterly results, while tokens generated 3.35% median returns three days after being listed.