27 Oct

ICOs: The end of an era? The Future of Security Token Offerings (STO)

You wouldn’t have expected that from Civil: This week the Blockchain project had to declare its ICO a failure. Despite the recent partnership with Forbes, the Blockchain journalism platform was unable to reach the minimum investment target (softcap) of eight million US dollars. If one of the few substantial ICOs of these days can no longer even earn a single-digit million amount, then the question arises whether ICOs in their current form have not abdicated.

In addition to all the air numbers, there are also blockchain projects that are really innovative and serious. Just a year ago, these blockchain projects could easily crack a softcap of 10, 20 or 30 million US dollars. Even obvious scams penetrated these areas. Now, after the bursting of the ICO bubble, the self-confidence of the blockchain projects is on the ground. The communication model of a Donald Trump has not worked for a long time. Too often investors have heard sentences like “We are the greatest” or “Nobody is as innovative as we are” from ICOs. The ICO hubris was caught up by reality: it was not delivered, the capital has started to retreat.

The 90-percent cryptosoft

The fact that ICO investments have declined is not bad per se says onlinebetrug. Due to the higher demands on the part of investors, fewer and fewer projects are managing to sell their tokens and list them on the stock markets. The flood of pointless tokens is thus contained and the market becomes more professional. This is a healthy development, albeit painful for many cryptosoft investors. Nevertheless, a collapse of around 90 percent of the ICO market points to a severe crisis in the ICO sector, there is no doubt about that.

This crisis is particularly evident in promising blockchain projects that are now barely able to achieve a relatively low soft cap by the end of 2017. Civil stands here for many failed ICOs who failed in the second half of 2018 despite a good team, serious partnerships and a demanding use case.

Is an ICO still worthwhile at all?

Quite a few blockchain companies therefore ask themselves whether they should still carry out an ICO at all. Moreover, marketing costs have long since decoupled. Expenditure is rising all the time in order to desperately attract attention from investors. The former promise of collecting tens of millions with little effort is history.

The hope now lies in a change in the entire ICO sector. Some blockchain start-ups prefer to wait and hope for a replacement of the term Initial Coin Offering and the emergence of Security Token Offerings (STOs). If security tokens can be presented in a regulated environment and with newly created trust, there will be many block-chain companies that will again actively consider issuing tokens.

From ICO to STO
The original basic idea of an ICO is ingenious and will prevail sooner or later. ICOs are the future of corporate financing, but they will probably no longer be called ICOs. They will mainly be security tokens that will replace pseudo-utility tokens. In contrast to ICOs, STOs are the more honest option when it comes to collecting capital for a company. The market will be determined primarily by institutional players, just as it is in the regulated financial sector. In isolated cases, there will be utility tokens again. In contrast to today’s utility tokens, however, these will assume a function in a truly decentralised network. There will be commercially successful cases in which more than a handful of people will use utility tokens for their intended purpose – not trading.

For the time being, however, the big money will flow, at least in the next few years, into security tokens and the tokenization of real assets – assuming regulatory foundations. Correspondingly, companies and investors are eagerly awaiting the regulatory authorities’ go-ahead.