Security token offering

Though sharing some core concepts with ICOs and IPOs, STOs are in fact different from both, standing as an intermediary model. Similarly to ICOs, STOs are offerings that are made by selling digital tokens to the general public in cryptocurrency exchanges such as Binance, Kraken, Binaryx and others.{{Cite web|title=Binaryx: Crypto Exchange. Bitcoin Exchange and Digital Assets|url=https://binaryx.com/}}{{Cite web|title=Blockchain & Cryptocurrency Laws and Regulations {{!}} Hong Kong {{!}} GLI|url=https://www.globallegalinsights.com/practice-areas/blockchain-laws-and-regulations/hong-kong|access-date=2021-09-02|website=GLI - Global Legal Insights - International legal business solutions|language=en}} The main difference stands in the fact that ICO tokens are the offered cryptocurrency's actual coins, entirely digital, and classified as utilities. New ICO currencies can be generated ad infinitum, as might in some cases their tokens. Additionally, their value is almost entirely speculative and arises from the perceived utility value buyers expect them to provide.{{cite web |url=https://www.ft.com/content/eeeacd7c-2e0e-11e9-ba00-0251022932c8 | title=The libertarian fantasies of cryptocurrencies | last=Wolf | first=Martin | date=12 February 2019 | website=Financial Times |access-date=2019-11-28}}

Security tokens, on the other hand, are actual securities, like bonds or stocks, tied to a real company.{{Cite web|title=Security token offerings: The next phase of financial market evolution?|url=https://www2.deloitte.com/content/dam/Deloitte/cn/Documents/audit/deloitte-cn-audit-security-token-offering-en-201009.pdf}}

In terms of legislation, some jurisdictions do treat STOs, ICOs, and other cryptocurrency-related operations under the same legislative umbrella. In general, though, STOs are placed under securities legislation (together with traditional IPOs), and ICOs under utilities, with the differentiation being made mostly on a case-by-case basis.{{cite press release |title=Guidance on Cryptoassets |url=https://www.fca.org.uk/publication/consultation/cp19-03.pdf |location=United Kingdom |agency=Financial Conduct Authority |date=January 2019 |access-date=2019-11-26}}

The main debate surrounding security tokens is, thus, the legal differentiation of what can be qualified as a utility instead of a security. Generally, legislation understands that if a passive financial return is expected from the investment, then it is classified as a security. This way, even if the offering company understands their tokens are merely a utility asset with no expected return investment, if it can be proven otherwise then the ICO becomes an unregulated STO, passive of legal punishment. Moreover, this assumption of utility has been abused by some STO offering companies to sell securities without regulatory compliance (maliciously labeled as ICOs).{{cite web

|url=https://www.cnbc.com/amp/2018/06/06/sec-chairman-clayton-says-agency-wont-change-definition-of-a-security.html

|title=SEC chief says agency won't change securities laws to cater to cryptocurrencies

|last=Rooney

|first=Kate

|date=6 June 2018

|website=CNBC

|access-date=2019-11-27}}

This legal ambiguity has led to some ICO offerers being prosecuted by the SEC as a security offering part, though their tokens were announced as utilities. Such companies include messaging apps Kik and Telegram, the former being sued by the SEC for over $100 million and the latter delaying their offering plans after similar prosecution.{{cite web

|url=https://www.ft.com/content/3cc0a036-86e7-11e9-97ea-05ac2431f453

|title=SEC sues messaging app Kik over $100m ICO

|last=Badkar

|first=Mamta

|date=4 June 2019

|website=Financial Times

|access-date=2019-11-27}}{{cite web

|url=https://www.financemagnates.com/cryptocurrency/news/sec-vs-telegram-will-gram-tokens-ever-be-distributed/

|title=SEC vs. Telegram: Will Gram Tokens Ever Be Distributed?

|last=McIntosh

|first=Rachel

|date=18 October 2019

|website=Finance Magnates

|access-date=2019-11-27}}{{cite web

|url=https://www.cnbc.com/2018/11/16/in-crackdown-of-crypto-sec-goes-after-unregistered-coin-offerings.html

|title=In bigger crackdown of crypto abuses, SEC goes after unregistered coin offerings

|last=Rooney

|first=Kate

|date=16 November 2018

|website=CNBC

|access-date=2019-11-27}}

One of the main selling points of cryptocurrencies such as Bitcoin has been the decentralization aspect, by which no government can influence or control the currency. By extension, a cryptocurrency is not directly affected by a specific country's jurisdiction, sociopolitical environment, or economic events.{{cite web |url=https://www.gq.com/story/cryptocurrency-will-not-die |title=Cryptocurrency Will Not Die |last=Baldwin |first=Rosecrans |date=26 November 2019 |website=GQ |access-date=2019-11-27}} Such a lack of regulation has led to the rising of large-scale crypto-related criminal activity, ranging from terrorist funding to tax evasion, most of which go untracked and unpunished.{{cite web |url=https://www.nytimes.com/2019/08/18/technology/terrorists-bitcoin.html |title=Terrorists Turn to Bitcoin for Funding, and They're Learning Fast |last=Popper |first=Nathaniel |date=18 August 2019 |website=The New York Times |access-date=2019-11-27}}{{cite web |url=https://www.theguardian.com/technology/2019/jul/27/irs-tax-cryptocurrency-bitcoin-income |title=IRS warns crypto holders: dodge tax and we'll hand out stiff punishments |last=Helmore |first=Edward |date=27 July 2019 |website=The Guardian |access-date=2019-11-27}} Similarly, ICO scams have been an increasingly troublesome matter, causing billions of dollars in losses and damaging the cryptocurrency market's value as a whole.{{cite web |url=https://www.bbc.com/news/stories-50435014 |title=Cryptoqueen: How this woman scammed the world, then vanished |date=24 November 2019 |website=BBC News |access-date=2019-11-27}}{{cite web |url=https://fortune.com/2019/11/27/crypto-needs-journalists-more-than-it-wants-to-admit/ |title=Crypto Needs Journalists More Than It Wants to Admit |last=Morris |first=David |date=27 November 2019 |website=Fortune |access-date=2019-11-27}}

So far, STOs have been regulated and legalized in many countries where ICOs have not, due to fitting in many already pre-existing regulations regarding securities.

• Initial coin offering
• Initial public offering
• Alternative currencies
• Private currency
• Digital asset

{{reflist}}

Category:Cryptocurrencies