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.

Numerous blockchain options

The Japanese technology company Sony wants to expand its digital rights management system with the Blockchain technology. In this way, information on rights to written works is to be managed.

Sony has already come out several times as a Blockchain fan. The company already worked together with IBM on a blockchain-based education platform in the summer of last year. In April of this year, Sony even filed a patent concerning the use of blockchain technology for the administration of user rights. Now the company wants to use the security advantages of the technology to permanently manage the rights to written works.

Sony wants to extend digital rights management with Blockchain

The project is being developed jointly by Sony Music Entertainment Japan and Sony Global Education, as the company announced on 15 October from its website. There, Sony also explains why blockchain technology is currently the focus of the company’s development:

Blockchains create networks in which programs and information are difficult to destroy or falsify and are well suited for the free transfer of data and rights. These characteristics give Blockchains many possible uses for a range of services, including finance, goods distribution management and sharing economy, and we expect that Blockchains will provide even more innovative services in the future“.

The new system will be based on an existing system for authentication, sharing and rights management of training data. However, it will also offer functions for processing rights information.

Sony explained that

„This newly developed system specialises in managing rights-related information from written works, with functions to demonstrate the date and time at which the electronic data was created, and using the properties of blockchains to record verifiable information in a manner that is difficult to forge and to identify pre-recorded work. This allows participants to share and verify when and by whom electronic data was created.“

These managed works can be electronic textbooks, music, films, VR content and books. This is intended to put a stop to legal disputes about who is the actual author of the work.