There is no doubt that 2017 and at least half of 2018 was the time of the ICO. But as we now head towards the halfway point of 2019, there is little mention of this concept that once took the world by storm.
In 2017, around $5.6 billion is estimated to have been raised via ICO, a total which was surpassed by the end of the first quarter of 2018. But sadly this was not to last and by the end of the year in which ICOs saw their biggest growth, they also experienced their biggest downturn.
By January 2019, C-Level Fintech players were telling Bloomberg and CNBC that ICOs were “dead” and “over” and the once popular way of funding crypto and blockchain projects, seemed like it would become obsolete.
But what happened and why?
ICOs boomed in a time when there was very little in the way of market regulation. The world of crypto and blockchain was barely understood by regulators, governments, and most of the public, and as such bad actors and scams were rampant. In August last year, it was reported that almost $100 million had been lost to ICO exit scams, leaving investors angry, confused, and penniless.
But things have changed since then.
In the last quarter of 2018, the Maltese government became the first in the world to create comprehensive legislation in favour of cryptocurrency, blockchain, and ICOs. Over the following months, a number of other countries both in and outside of the EU followed suit. This created a climate where uncertainty was removed and where the number of ICOs dropped due to the fact that they were now under scrutiny from governments and authorities around the world.
Considering that the estimated number of ICOs that were fraudulent was 78% in 2018, it is not hard to understand why the total number of ICOs dropped towards the end of the year and into 2019. But there is something else to consider as well.
As the market has matured and grown, many will tell you that the ICO is not dead- rather it has just evolved. For example the number of Google search terms for “ICO” has dropped almost 90% during the last few months, but the term “STO” has risen substantially.
Ron Mendelson, founder and CEO of Fast Offshore explained; “for every ICO that we see going live today, there are at least three security tokens being launched at the same time”.
He added: “ as the market continues to mature and people become more familiar with the concept of blockchain technology, as well as continue to seek more regulatory certainty, we expect STOs to become more prolific.”
What is an STO?
‘STO’ stands for security token offering. Similar in concept to an ICO (Initial Coin Offering) in that an investor is issued with a crypto coin, or a token that represents their investment. The difference between an STO and an ICO however is that a security token represents an investment contract to an asset such as a bond, stock, fund, or other investment or asset vehicle.
A security is defined as a “fungible, negotiable, financial instrument that holds monetary value” and a security token represents the ownership information of the product, which is then recorded on the blockchain. When you invest in such a project, the ownership is encoded into the blockchain and you are issued with a token that corresponds to it.
Naturally, securities are highly regulated throughout much jurisdictions, and this is the key to their popularity. With a security token offering, investors can feel more confident that what they are investing in is not a scam and that it is less likely the whole project will disappear, shortly after they part with their money.
In other words, ICOs are not dead, but rather investors are just playing by the rules, doing more due diligence, and looking for more credible and trustworthy projects.
At Fast Offshore, we are able to not only advise you on STOs and ICOs but we can also help you with whitepapers, tokenomics, AML and compliance, and deciding which jurisdiction is best for you. By teaming up with a trusted network of international partners, we can offer you crypto and blockchain related services in a number of EU Member States as well as BVI, Curacao, and Costa Rica.
Contact us today to find out more.