An exceptionally low success rate and a substantially high risk of scams are already making the much-hyped ICOs obsolete. And now, according to a Nov. 12, report from Beyond Blocks, there might be a better, faster, and more secure way of funding blockchain projects.

The initial excitement over ICOs, with their ability to garner multi-million dollar investments and virtually no taxation or regulation, seems to have faded as rapidly as it has started. And while much of its popularity was killed by government regulation, and sometimes even outright bans, the meager success rate, and the scamming issues also attributed to the negative sentiment towards ICOs.

When implementing an ICO, a company doesn’t have to sell equity, and users can buy tokens for use, making it beneficial for both parties. However, as utility tokens are not an investment in the company itself, the users aren’t entitled to anything from the company.

This presents a problem as there’s no value to the tokens until the issuing company delivers on its promises – however, businesses rarely have insurance in place to protect investors.

As very little can be done to prevent incredible amounts of money being lost, Building Blocks raised the question if this was the right moment to offer investors a new alternative to ICOs?

STO stands for Security Token Offering, and it’s a new and legitimate way of funding blockchain innovation. It’s seen as a more stable alternative to ICOs, as the security tokens are ties to real securities, which often represent the company’s tokenized assets.

Security tokens give the buyer ownership over whatever the token represents in digital form, for example, equity, derivatives, or real estate. This type of funding can create more liquidity and make it more accessible to investors.

Apart from potentially being able to bring a lot of money to the crypto industry, STOs also require licensing by regulatory bodies such as the SEC. The risk of running into legal troubles halfway into the funding is virtually nonexistent, as all regulatory criteria will be met from the very beginning of the funding.

As an STO is fully compliant with regulatory frameworks, it also offers investors the ability to trace their investment and protects them against fraud.

Harish D. Gupta, CEO, and Co-founder of Polybird Exchange told Cryptoslate:

“What we have been observing in the marketplace is that the popularity of ICOs have been going down as much as people have been claiming that the ICO market is dead. This happened for various reasons. One obvious reason was way too many scams in the ecosystem, but another major reason was that the utility token investors invested in weren’t structured well to capture the company’s growth. So in cases where companies started to gain traction and generate revenue, investors weren’t able to capture much/any growth.”

However, STOs do come with setbacks, especially for companies looking into this type of funding. One of the main concerns with STOs is that some of form of security tokens don’t allow all investors into the sale. According to Building Blocks, when securities are on the regulated exchanges, most trades will be performed via algorithmic trading, thus bringing centralization.

For companies, Security Token Offerings bring complex processes and paperwork, while ICOs haven’t brought any real hassles so far, as they’re relatively easy to set up and are quite lucrative.

It is still unclear whether STOs will be able to completely replace the more lenient and lucrative ICOs, but what remains certain is that they are offering accredited investors the governance and protection that was often reserved for traditional IPOs.

The post Investor Rights and Legal Risks Might Make STOs the Future of Funding appeared first on CryptoSlate.

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