The time of unregulated ICOs is gone.
It was a period of high speculation, greed, and blockchain faith, which eventually brought a lot of disappointment to those hoping for fast returns.
Fortunately, for people looking for adequate legal frameworks to support innovation, and unfortunately, for hustlers hoping to cash in on hype, investing in crypto and blockchain powered projects can finally be regulated enough to protect contributors, financial innovation, and project founders.
Over the last year, ICO evolved into STO and ETO — mostly filtering out speculators and bringing serious investors into the niche. This does not mean that ICOs are gone — we are still seeing a reasonable amount of projects by finding loopholes in local countries with favourable crypto legislation climates. Plus, not every project is actually offering a security, rather the commodity to be considered an STO.
The aspect which both STOs and ICOs share is the idea of business financed by a crowd (a crowd contributors or accredited investors), but this is where the similarities end.
An ICO is all about the utility token which grants access to a project’s unique functionality or service that will most often be built using the money raised during an initial crowd offering. An STO has stricter regulations on who can actually invest. Pay attention to the lingo here:
- An ICO has contributors
- An STO has investors
In order to participate in an STO event investors have to be prequalified (investors should have a net worth of at least $1 million or a stable annual income of $200,000 for the past two years). Participation in an STO allows investors to acquire tokens that represent securities or shares, which entitle investors to the share of earnings from the company.
In order to be able to issue shares, a company has to either register with the SEC or use an exemption called Regulation D. We already covered that in our article here:
What does this mean for companies?
It means that by clearly stating that your token is a security and registering it as one, you will be safe from future potential problems with the SEC, the IRS or FinCEN. It does not change much in terms of how you are going to market your product, approach investors, select team members, and define timelines. You will need to run KYC on your investors, but frankly speaking this was a requirement on many ICOs as well — so nothing new here.
What does this mean for contributors?
If you don’t fall under the category of accredited investor there is not much you can do. You can still look for reputable and credible ICO teams and interesting ideas to contribute to.
There is no sure way to tell the worthy projects from the rest, so the best strategy here is to learn as much as you can about the founders and their stake in the project. Talk to community members, listen to their presentations, and find what the press has to say.
There are definitely projects that deserve attention, and since there are fewer ICOs than two years ago analysis is way easier.
We will be publishing our reviews of ICOs and STOs by analyzing:
- Team members’ expertise and reputation
- Professionalism of documents presented (whitepapers, yellow papers, light papers, business plan, pitch deck, presentations, high level prospectus) to make sure there is:
- A clear concept of how blockchain is utilized and whether the blockchain usage makes sense in the context of the particular solution
- An adequate market analysis (size, potential, competition, expectation)
- A realistic timeline with milestones that can be confirmed
Please email us at Hello@bigbreak101.com if you’d like to see the ICO analysis of a certain company.
If you’d like to order a private analytics report for an STO or ICO we will be happy to accommodate your request. Check us out to get an estimate for an ICO or STO report.