Last month we saw Blockchain Week return to London. The 2018 edition had been dominated by much media fanfare given the surging value of cryptocurrencies and flood of ICO (Initial Coin Offering) fundraising and investing. It is fair to say that a lot has changed in the last 12 months.
This year’s event had a very different, far more mature feel, being populated by companies representing genuine blockchain focussed enterprise. One key change was the distinct lack of ICO related propaganda, reflecting the sharp decline in ICO volumes globally in the last 12 months as the retail market ‘wised up’ to the general lack of investment substance and fall in the value of crypto assets.
Much of the talk at this year’s event was centred on ‘tokenised’ and ‘smart’ securities along with the opportunities they represent moving through 2019. There was particular excitement about the possibility of ‘digitising’ private limited company shares, making them a tradeable asset.
The suggestion that STOs (Security Token Offerings) were picking where ICOs left off was largely shut down by panellists, in part because as the term “Security Token” covers such a wide variety of digital asset classes and uses. The term ‘smart securities’, referring to securities that have been made ‘liquid’ (i.e. easily transferable) through the use of technology, was generally suggested as the future of digital assets.
From a regulatory perspective, in the US, any token is considered a ‘security’ by the Securities & Exchange Commission, regardless of whether it is linked to an asset. In the UK, FCA guidance has indicated that any token linked to an asset is likely to be classified as a security and will therefore be covered by the existing regulatory framework.
The fact that STOs typically fall within existing regulatory frameworks has meant that the uptake as a capital raising tool has been far slower than ICOs during late 2017 and early 2018. Businesses looking to raise capital have to carefully assess whether an STO really offers an advantage over traditional fundraising methods as the regulatory standards and hurdles are the same in many jurisdictions.
2019 looks like it will represent another year of change in the blockchain sector, with a rise in tokenised securities and continued decline in ICOs as a method of fundraising.
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