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STO + IEO: can such a combination be a new step in the evolution of crowdfunding?

Feb 19, 2020 | News
STO + IEO: can such a combination be a new step in the evolution of crowdfunding?

The moment of the first appearance and further rapid popularization of cryptocurrencies coincided with the heyday of crowdfunding - attracting investment in new projects outside the framework of traditional banking systems. And it is not surprising that the first “investment” direction of using cryptocurrency tokens appeared very quickly - the initial coin offering or ICO.

A fairly simple system that allowed anyone who wants to deposit their cryptocurrency assets into the account of a company they like to stimulate its development. The problem is that an ICO has proven to be an almost perfect tool for scammers. Exaggerated promises, classic financial pyramids, false reporting, and investor manipulation - all this was actively used by dishonest users.

The peak of development of the initial supply of coins came in 2017, when it became clear that the system as a whole was operational, but a number of shortcomings needed to be eliminated, moreover, urgently. As usual, regulators started with restrictions and accountability. The U.S. Securities and Exchange Commission were also involved.

The appearing of STO

ICO did not fit in with many regulatory requirements, so this system had to be adapted. The result was STO - a security token offering. If you put it simply, unique digital assets turned out to be tied to real assets, in the regulation of which the SEC really succeeded.

This has significantly improved the situation - the market has become more liquid, operations have become transparent, and there is the possibility of round-the-clock and instant interaction with investors.

According to an Inwara report, in the first quarter of 2019, the number of STO-based projects increased by 130 percent. The same report also recorded a significant decline in the number of companies using ICOs.

The appearing of IEO

IEO is the initial exchange offering, in which tokens are offered through specialized exchanges. That means a more stable cryptocurrency price, the initial ability to use it within the framework of exchange trading, high liquidity, and also investor protection, since exchanges always check new projects, and in which case they themselves are responsible and compensate users for losses.

Among the well-known projects for which funds were raised as part of IEO are the following: BitTorrent, Fetch.AI, Celer Network, Matic, Harmony, and Elrond. In addition, an increasing number of exchanges are beginning to provide users with the opportunity to use this investment tool. And not surprisingly, they soon started talking about the possibility of merging the two mechanisms - STO and IEO.

What is the use?

We are talking about the possibility of investing through the exchange offer of tokenized securities - STEO. The idea seems to be promising, but in practice - not yet tested.

It is planned that this investment mechanism will fully adapt crowdfunding investments to US law, as well as use these mechanisms in the international market. Moreover, projects will even be able to use the tax benefits laid down by law.

In addition, all operations within this system are transparent. So users and regulators will have complete data on where projects will spend their money. And what are they all about? An excellent mechanism against money laundering, as exchanges are also required to check the projects in which they invest.

And the fact that the price of the token is already tied to a stable tangible asset (securities) makes this market as a whole more liquid.

Among the potential drawbacks may be the ability to directly regulate who should be given the right to dispose of tokens and who should be automatically prohibited. Departure from the classic "cryptocurrency independence" in favor of greater reliability.

So far, only one such planned project is reliably known - Dreamer from CEO Dreamr Inc. For this, the IDCM exchange will be used. And yes, the new project will meet all the proposed STEO criteria.

So all progressive investors should pay close attention to the new mechanism. At least because the main profit will be received by those who will join at the earliest stages.