Before investing in an STO we must answer two questions with the same reply.
What is the main characteristic between an Initial Coin Offering and a Security Token Offering?
Why has the introduction of security tokens not overcome the negative image of twisted scam artistry of the ICO age and risen above and beyond as the “new token craze”?
It seems like a simple answer and yet absurdly accurate: Regulation.
Regarding a Security Token and the Difference to the Utility Token:
The biggest criticism of the SEC regarding ICOs is that tokens have no security. Since most tokens offered are what are known as utility tokens.
Basically, tokens can be divided into two categories:
Utility Token
Security Token
The security token is supported by external, tradable assets. One of the main applications is that they allow companies to issue tokens that are comparable to shares of the company.
These tokens are subject to securities regulations. This point is particularly important for the SEC and other regulators.
A utility token, on the other hand, offers the buyer future access to a company’s product or service. In principle, it is not intended to be viewed as an investment... And yet, it is.
The biggest difference between utility and security tokens is that the owner of the security token has ownership rights. The utility token holder has no rights or interest claims in the platform or the company’s assets.
The current STO market
The regulations have been spun tightly for STOs while remaining loose and unclear for ICOs.
We seem to want to believe the fairy tale of the “scamproof coin offering”, so, unsurprisingly enough, disadvantages of STO regulations are hoped to be compensated with the argument of “investor security”.
On the other hand, ICO’s are almost never about whether or not a token has a provable long term stability, but rather about the advantages of Token fundraising compared to traditional fundraising.
The lack of regulations due to the immature nature of Initial Coin Offerings might have been dampened ever since investors burned themselves with scam ICOs during the bubble burst of Bitcoin.
However, it would seem that the demand for unregulated investing with prospects of a sudden gold rush of 10x, 30x and even 500x ROI seems to have not halted the burnt hands from throwing more cash into the endlessly hungry ICO machine, albeit with a more careful and slow approach.
In conclusion
If STO’s are ever to drown out the noise from the unregulated, perpetually evolving ICO craze, they must adapt a new strategy to include a wider audience of investors seeking the advantages of unregulated funding.