“ICO vs STO?” the critical question at Q1 2019
“Actually, an ICO is just a promise!”
ICO stands for initial coin offering
The purpose of this article is guiding businesses and investors through their process of choosing between ICO/STO methods.However, in order to answer this specific question, we need to review some of the main aspects of ICO/STO in detail.First of all, we should know that both of these concepts are just methods; they work on the same basics, but they are different in their structure and functionality.Let’s discuss them both in more detail.
1- Initial Coin Offering “ICO”
Initial Coin Offering is a NON-regulated method to raise funds (we can consider it a new digitized Crowd funding method). One of the reasons behind the invention of ICOs is the hard and expensive process of doing an “IPO” (initial public offering; stock market). That’s why we can think of ICO as a much easier and digitized version of IPO to do! Usually, startups use this method to raise funds, specifically from their potential customers, even before the existence of their product or service! Just like a presale. Now, you may wonder, “How can we be sure of ICO’s product/service delivery?” WE CAN’T!
Actually, an ICO is just a promise! Companies sell their ICO, and they promise to deliver their product/service on their Roadmap! This is an entirely blindfolded trust; it might work on heaven, not on earth! Formerly, there were many successful ICO projects, but, after a while, scammers realized the massive potential of money laundering & corruption in this market, which according to SatisGroup, lead to %80 scam projects on 2017! It shows us that there was something seriously wrong with the definition and functionality of ICOs! Some didn’t deliver their promise, some changed their roadmap, etc.
According to Investopedia report on March 2018, we observed “$9 million lost each day in cryptocurrency scams!”
As you can see, this was a critical situation and still is!
On the other hand, there are some serious challenges in the regulation process of an ICO, since they are Fiat (Fiat means that they are not backed by anything! As we mentioned, ICO is just a promise). Also, they have a massive potential of money laundering, and at the top, there is a significant potential for bubble creation in ICOs which could affect the whole Economy! The reasons mentioned in this article, have caused the ROI (Return on Investment) ratio of ICOs to decrease every day. Indeed, we have already reached the critical point!
As you can see, the whole market stands on an unstable bubble, which could burst any second and drown us all! However, just like any other newborn technology (market), there are some defects on the function and structure of ICOs too, which is necessary to be changed by the experts, based on the available feedback and development process.Therefore, that leaves us with two critical questions: “what is the best way for companies to offer their tokens?” and “what is the safest way to invest in tokens?”These questions had made experts come up with a more secure and provable method for offering tokens, called “STO.”
2- Security Token offering “STO”
Security token offering is an intelligent combination of ICO and IPO, by taking advantage of both of these market’s benefits, STOs could be a revolution in both industries.
Basically, in terms of allowing consumers to buy or sell digital tokens/coins and taking advantage of the 24/7 market, STOs are similar to ICOs. The main and most critical difference between these two is that STOs are NOT fiat! Despite ICOs, STOs are more than a promise. They are backed by the tangible assets of the company, whether it’s their machinery, property and real state, profits or revenue, etc. You can be sure that there is something REAL there, which means that there is a tiny chance of bubble creation in this method compared to the very high potential for bubbles in ICOs! Why did we say tiny chance? Good question! This possibility would never be zero! NOT even in governmental markets! Bubble creation is an advance definition, it has many indices and it’s not possible to measure every index or aspects of that! That’s why we can never be sure about the immunity against this possibility!
On the other hand, STOs are SEC (Security Exchange Commission) friendly, which means that STOs can be regulated as a legal project! This could be the golden ticket for Startups! By public offering of their tokens using STO, startups could expect their tokens to be traded on other profitable markets including Stock Market, without passing the hard and expensive process of doing an IPO! Besides that, the ROI ratio of STOs is increasing every day; unlike ICO which is decreasing simultaneously! We can say STOs are slowly taking the market cap of ICOs until there is nothing left! We can see that there is significant growth potential in this method.According to MoneyMorning report on April 2018 “one pioneer in this space estimates that security token offering (STOs) could grow to $10 trillion in just two years.”
Cryptocurrency is a high-risk market, but as you know, higher risk leads to more revenue.
In order to succeed in this risky and profitable market, whether as an investor or a business, you should always keep track of the early signals of any development and analysis generated by experts.The only difference between success and failure in this market is Fresh Knowledge! So, if you want to grab a bigger piece of the pie, in other words, a more significant market share, you should always keep your knowledge up to date, and take actions based on that pure knowledge before your competitors!In this article, we have tried to review some of the very first signals of the transition from ICO’s to STO’s, the choice is yours, whether you want to take action sooner and win the battle, or sit back and watch…