The regulated future of blockchain-based crowdfunding is just around the corner, with regulators now taking a hands-on approach to the oversight of initial coin offerings (ICOs). Regulatory interest in ICOs, as well as the recent establishment of legal precedents that define ICOs as securities under U.S. law, have catalyzed a dramatic surge in the amount of effort dedicated toward creating a standardized protocol that can be used to issue tokens that meet the legal definition of “security tokens.”
TokenSoft, a white label token sale platform that offers integrated custody solutions for ICOs, published an Ethereum Improvement Proposal that could establish an Ethereum-based security token standard, potentially allowing for the creation of an “STO explosion” to rival 2017’s year of the ICO.
I just published “ERC-1404: Simple Restricted Token Standard” https://t.co/AtlRz58apb
— Mason & Co. (@masonic_tweets) September 19, 2018
Why Do We Need Standardized STO Tokens?
The days of the ICO wild west are over, as increased regulatory interaction with the blockchain and cryptocurrency ecosystem means ICOs that offer investors a share in the assets, profits or revenue of a platform are highly likely to fall under the regulatory scope of securities law.
The security token offering (STO) is a solution to the regulatory impact of evolving token sale legality, providing startups and new blockchain ventures with the ability to offer investors a financial product that falls under securities regulation without violating securities laws.
Unlike a utility token, which can be used to represent access to a network or platform, or the ability to purchase goods and services from a network, security tokens represent either complete or fractional ownership in an asset. Shares in a company,