Security Tokens: A Revolution of Crypto Investments for Everyone

Data & Research / 26.07.2020

There are thousands of cryptocurrencies in the market today, and they are no longer a medium of exchange alone. Multitudes have noticed the advantages of investing in them as opposed to fiat currencies. According to 2019 statistics, over 20% of the world’s population has bought cryptocurrencies, and over 80% have invested in crypto-related ventures. Bitcoin is the most invested cryptocurrency thus far, with Ethereum following closely.

Nevertheless, crypto investments primarily engulfed influential investors in the market. The need to involve more parties to help with adoption led to the innovations of ICOs. Initial Coin Offerings gave the small fish a chance to partake in the ventures. The process has its basis in crowdfunding. Startups can raise funds through people investing in a project. Thus, the success of the project depends on how much people put into it. The promises ICOs offered now seem like a curse considering the problems that come along with it. These factors have necessitated the need for better investment options for traders worldwide.

ICOs’ Shortcomings

Whales in the industry realized the potentials of making money through them. Therefore, they began privatizing the sector, which meant a loss for the expectant and potential investors hoping to get funding for their businesses. Many crypto enthusiasts lost out on investing in crypto assets, as the wealthy dominated the ICO industries. Excellent examples in the factor are Telegram, Tatatu, and Basis.

Other disadvantages ICOs posed include lack of security for investors, lack of regulations, numerous fraudulent activities, short coverage periods, and the need to offer a considerable amount of income for it to count.

Security Token Offerings (STOs)

These shortcomings prompted innovations into security tokens to cushion investors from entering crypto trading. STOs work much like ICOs only that a security token holder holds a part in an existing investment such as stocks and bonds. Besides, STOs are regulated, unlike ICOs.

STOs vs. ICOs

It would be best to look into tokenization to understand the differences between ICOs and STOs. According to the Security and Exchanges Commission, security is a commodity investment that people promote and contribute to with expectations of profits. 

Security tokenization is the process of digitizing assets, making them available on a blockchain. A security token, in turn, gives an investor a share in an investment. They achieve this through smart contracts, ensuring investors’ protection during trade and storing them and utilizing them to guarantee loans. Crypto security tokens are subject to federal laws accrediting and taxation, among others.

The main differences between STOs and ICOs are:

  • STOs allow investors to buy a digitalized real-world asset, while ICOs offer investors a chance to gain profits from speculating with utility tokens without an underlying asset.
  • STOs are regulated under federal law, compliant to anti-money laundering activities, and scam-free. At the same time, ICOs are non-regulated and subject to fraudulent activities and swindles, which lead to loss of funds.
  • STOs are a new category of digital assets. Each token represents certain rights such as rights for future profits of a video game, ownership or usage rights of real estate, or rights for dividend payments of a company bond. Any financial product defined as a security can be tokenized and represented in a decentralized ledger network.
  • STOs fundraising requires a company to formulate a viable business model before launch, making the process more transparent and profitable. The group has to tokenize the asset in question to make it available to accredited investors. ICOs can announce a random fundraiser and launch it. ICOs are short-term investments where launchers can use raised funds for whatever they want. They distribute the tokens later through smart contracts.

What Makes STOs Better?

Even though STOs and ICOs are similar in many ways, STOs offer a better chance for investors. For starters, ICOs are short-lived. STOs offer a solution for this by providing investors with invariant access to markets. They can perform transactions at any time, providing essential data concerning markets.

Regulations in Place

Since the STO environment is under regulations, smart contracts allow users to only utilize tokens under the obligations put in place. The technology used enables a network to keep track of token activity, ensuring only approved investors can buy or sell said tokens. Smart contracts also widen the scope of crypto trading investments to a global scale where investors can buy and sell tokens as per federal guidelines.

Better Transparency

STOs are more transparent and devoid of scams, unlike in ICOs. Investors are free of fraud worries, thus increasing the numbers attracted to the process. In turn, it paves the way for multiple investment opportunities.

Investment Opportunities For Everyone

STOs, offer investors on the lower side with a chance to involve themselves in the game. Since one can partially own tokens, investors can buy securities at a lower price. Furthermore, they provide faster transactions since confirmations are easier and effective dividend payments to shareholders.

No Intermediaries

Finally, yet importantly, STOs do not need intermediaries. A user is the sole owner of security tokens, which they store in their digital wallets. It makes it harder for big players in the crypto market to manipulate the launch, unlike in ICOs. In that case, falsified information about projects’ successes does not apply.

The LCX STO Launchpad

LCX has recently implemented the STO Launchpad, which allows end-to-end tokenization. It is vital in the issuance of security tokens, airing regulations surrounding it, and investors’ assets management. Besides, it ensures fast transactions at lower costs during STO processes. The LCX platform encourages all types of investors with personalized options to suit each investor’s needs.

LCX has built a proprietary technology platform that includes a sophisticated and compliant investor on-boarding and management suite with state-of-the-art custom compliance, KYC and AML systems. A key part of the LCX platform is LCX Accounts, which automatically gives users several wallets capable of handling security tokens as well. 

LCX is carefully selecting partners, companies, and projects to tokenize real-world assets. LCX’s focus is on assets that normal investors had not been able to invest before and where a large community of potential investors already exists. LCX increases efficiency and reduces the costs of raising capital. The STO Launchpad bridges the gap between issuance, custody, and trading. LCX is bringing equal access to investing, one token issuance after another.

While LCX is taking a very international approach, they act based on the new regulation and legal framework for blockchain companies in Liechtenstein. LCX does operate in a regulated environment and offers access to assets in a secure and compliant manner.

Author’s Note

Crypto trades are increasing daily, and parties are jumping at the chances to earn funds from digital assets. ICOs were a favorable chance in the past to help investors in the same. However, more issues arose as their unregulated nature called for scams and fraudulent undertakings. 

Additionally, they are prone to manipulations by big fish in the industry, with wealthy entities taking advantage of crowdfunding.

STOs are a solution to the existing problem giving every investor an opportunity through security tokens. LCX has been on the frontline merging with different companies to make this dream come true for many globally. The STO Launchpad will revolutionize STOs, and the future holds more positive outcomes in the investment of digital assets. 

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Wayne is a Blockchain enthusiast and expert in crypto trading. Currently, he covers trendy issues on digital currencies.