The ICO (Initial Coin Offering) craze certainly stimulated global awareness in the technology known as blockchain. It was also representative of an unsustainable bubble of speculation which was always going to pop at one point or another.
Actually, the entire ICO fad worked out as a kind of a vicious circle. Had the markets continued to be propelled by utility alone, they might not have been half as prevalent as they were. Since they changed into a kind of, ‘unregulated securities market’ however, this has been very encouraging for investors in ICO for one reason and that is that they are best placed to take the lead in the fast-evolving market of digital securities.
The ICO (Initial Coin Offering) market used to be red hot, but this year sees it cooling considerably. Since the flames of ICO have been seen to subside, we see DSO (Digital Security Offering), rising like a phoenix out of the hot embers.
As we delve further into this revolution of change, it’s imperative that we understand that although the DSO and the ICO have a common baseline, they are essentially two separate entities.
Moving To DSO From ICO
The DSO has always been a cap management and investment mode that will almost certainly be utilized for placements which are private amongst others, which will make perfect sense to any experienced investor. Digital securities possess so many features that support it to achieve its goal, and is a massive improvement compared to the dreary and costly process of forming, trading, and handing private securities.
On the opposite side of the coin, ICOs were nearly sold solely as utilities so as to give incentive to public blockchain technology-building communities. The intention was to repay those who were working towards the community’s betterment.
In its original form, the ICO had never meant to be a vehicle of speculative investment. And even though there’s a handful of exceptions to this rule, most ICOs will not succeed. The impact of these failures cannot be blamed on the retail investor, but rather on the world-wide enthusiasm regarding tokenization and the sheer amount of capital raised was what contributed most to the lack of success.
Why And How Did They Succeed?
So how was this speculation created? Well, because of the lack of friction of blockchain token trading, we saw investors beginning to speculate, trade, and ride the proverbial wave until they reached the shore. We saw the birth of new markets, the oscillation of prices (both authentically and artificially) and the making of trades. It started to become very clear that the idea of “utility” had changed into a securities market that was not regulated.
Chief Operating Officer of Augmate, Dana Farbo, frankly suggests that it doesn’t matter whether or not the token is utilized as a share of the platform, but any company insisting on going down the utility tokens route with investors hoping to cash in on the token’s growing value is putting their business at risk along with livelihoods of investors, business partners, employees et al.
Jamie Finn, President and Co-Founder of Securitize.Inc., suggests taking a look at the following main elements for DSOs as an alternative to ICOs:
Compliance To Regulations
Reputable digital security managed platforms apply global rules and regulations to the digital token or share’s lifecycle.
ICO tokens are known to have been sold without lucidity in regulations. In several reported cases, there is nothing to legally protect the owner of the token from the issuer committing ignorant or nefarious acts.
Backed By Assets
Digital securities will always be funded by a worthwhile asset. This might be the payout of dividends from quarterly profits, part apartment complex ownership, or equity of a company.
Tokens acquired through ICO generally don’t have any backing of their asset’s value. They are presented in the form of a ‘utility;’ which is a way of using communication networks to access services. The investor pays cash for tokens that consequently allow service access.
Not Paired With Bitcoin
The NAV (net asset value) of the product-backing asset is how digital securities gain their value – trading at a discount or a premium to their net asset value.
Tokens acquired through ICO which use exchanges to trade on are frequently correlated Bitcoin prices. This situation is complicated. Not many ICO tokens depend on Bitcoin being underpinned by blockchain technology.
But when Bitcoin prices fluctuate, the ICO-based token’s value has a habit of following suit. Standing alone, the ICO is not strong, and the actual market value reflects this by being inaccurate.
Tokens acquired by ICO are individually managed by the owner of the project. These project owners are usually unable to handle any change.
The gradual transformation from ICO to DSO is happening as the market of digital securities is being formed carefully and methodically so will likely not mirror the ICO boom that inevitably precedes a bust, proving that patience is indeed a virtue in the world of longer term investment.