Under the circumstances of chaos and supervision, ICO has suffered a "crisis of faith" in the capital market. Faced with increasingly strict regulations in various countries, STO is like a cluster of charcoal fires in the severe winter, gaining people's attention. In addition, in mid-October, the US SEC approved the legalization of STO projects, which seemed to give some warm hope to projects and project investors who hope to raise funds.
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A Bold Attempt by American Retail Giants
Before talking about the birth of STO, we have to mention a company, Overstock. Overstock is one of the top ten online e-commerce platforms in the United States, and has been actively paying attention to the blockchain industry before that. In 2014, Overstock began to accept Bitcoin to purchase goods, becoming the first large e-commerce company in the United States to accept Bitcoin for shopping.
Overstock CEO Patrick Byrne, an open-minded and liberal man, said the company wanted to use the same technology as bitcoin to issue a "digital security." He also hired developers and lawyers to do it.
Byrne hopes to be able to provide a security that is not controlled by a central stock exchange, but is operated by the Internet all over the place, not controlled by any central authority.
Therefore, in 2015, Overstock launched Medici, a decentralized stock market, and obtained the approval of the US Securities and Exchange Commission (SEC) to issue digital stocks in the blockchain. This is the earliest prototype of STO.
tZERO, a subsidiary established by Overstock in early 2017, is a distributed bookkeeping platform for capital markets. What it does is to integrate blockchain technology with existing market transaction processes, such as stocks, bonds, digital Currencies are recorded through the blockchain to reduce settlement time and costs, and improve transparency, efficiency and auditability.
In layman's terms, maybe one day, you can directly use Bitcoin to buy American stocks.
Later, as a blockchain subsidiary of Overstock, tZERO launched the STO project in April this year.
Joe Cammarata, president of tZERO, said that the platform was officially launched in May this year and has been waiting for the SEC's review since then.
In mid-October, tZERO finally passed the SEC review.
At that time, tZERO stated in an email to investors that their STO issuance met the requirements of the US SEC Securities Law and will be circulated in the secondary market on January 10, 2019. And it also explains how investors can use tZERO STO.
There are even reports from the United States that Overstock CEO Patrick Byrne revealed in an investor conference call that tZERO has sold a warrant, which is a security holder has the right to buy at an agreed price. Stocks – A fund to buy a company for $2.6 million.
This is the first STO project regulated by the US SEC. Maybe you are confused here, what is STO and what is its significance?
The usual explanation is that STO stands for Security Token Offering, that is, the issuance of security tokens, which is a legally compliant public issuance of tokens under a certain regulatory framework and in accordance with the requirements of laws and regulations.
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Early stage, not very liquid
tZERO (token trading service platform) is currently the first STO project issued. In addition, there are Polymath (token issuance platform), Harbor (token issuance platform), OpenFinance Network (token trading platform), etc.
It is revealed that OKEx also intends to establish an STO exchange. Currently, it has established a joint venture with the Malta Stock Exchange, and will establish an STO exchange according to its regulatory framework.
In order to better explain why so many institutions and capital invest in STO projects, let's first turn to the ICO market.
It is late autumn in mid-October. When the weather turns cold, the currency market is getting colder, just like the temperature. It is a far cry from the hot scene in 2017, when the price of Bitcoin soared from $950 to $17,000, and Litecoin climbed from $4 to $330. A small number of people have realized the so-called desire of "getting rich overnight", and at the same time attracted the attention of a large number of people, so that the currency circle and the technology that is still in its infancy - the blockchain, entered the public eye prematurely, and project investors Therefore, it pays attention to its investment in the blockchain field. A large number of projects have started ICO in order to use the fastest way to raise funds.
Due to the savage growth of IC0, projects are mixed, and there are a large number of air projects that "play tickets" and "cut leeks". Behind the fish in troubled waters, the funds of investors and retail investors who hope to invest by purchasing tokens are damaged. Due to the lack of supervision, the chaos continues.
Because of this, governments of various countries have begun to gradually strengthen the supervision of ICO. Domestic regulators have also requested to stop the issuance of ICOs since September 4 last year.
In the United States on the other side, since the SEC is responsible for the country's securities supervision and management, rather than the token economy, it has regulated the security token, namely ST (Security Token). Utility tokens, such as ICO fundraising tokens, are not subject to regulation.
In this way, on the one hand, ICO does not need to go through more procedures and can quickly raise funds; on the other hand, due to the lack of government endorsement, the compliance of ICO itself has been questioned.
Therefore, when ICO is questioned and faced with the lack of supervision, it is reasonable for STO to break through.
So, knowing the origin of STO, let's talk about what is the focus of this recent attention. Regarding this concept, we communicated with Lin Yang, chairman of the DRC Foundation. Lin Yang has 20 years of experience in the financial field and nearly 10 years of experience in risk management and control. He used to be the head of IBM's risk management solutions, and a partner of Wing On Financial Services Transformation and Innovation.
In Lin Yang's view, STO has its unique advantages. First, it complies with national regulations. The issuer is regulated by various aspects such as industry legal compliance, project code audit, project team background, physical assets/company profit statement, etc. . The second is that public fundraising can reduce costs and improve efficiency; approval and supervision processes are more intelligent, and it is a 7*24-hour trading model. The third aspect is to accelerate the global flow of assets. STO can make global assets tokenized, and tokenized assets can also be traded globally, so that high-quality assets can go global.
"STO should actually be a TSO, with tokenization first and then securitization. The tokenization of assets that cannot be securitized, and the issuance of tokenized assets according to the securities regulatory system, the significance is to turn indivisible and immobile assets into Only when it can be divided and flowed can it have practical significance.” Lin Yang emphasized.
Lin Yang also talked about the Polymath project. Polymath is also an STO project from the United States. It was established in July 2017 and aims to migrate financial securities to the blockchain system. It is known as one of the leaders of STO.
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Hong Kong is trying, the mainland has not expressed its position
In early November, the Hong Kong Securities Regulatory Commission suddenly announced a new regulation on virtual assets, which said that STOs are allowed to be invested. For institutional investors, the China Securities Regulatory Commission proposes that as long as they have a license, they can invest, so that the regular army willing to invest in STO can enter the market openly.
Liang Jieyang, chairman of the Hong Kong Blockchain Association, said in an interview that the new regulations specify that institutional investors can invest in STO, but they need to have a No. 1 or No. 9 license. In this way, the regular army willing to invest in STO can enter the market openly and in accordance with the rules. The new regulations also point out the direction for the issuance of STO, that is, to find the compliance of issuance within the scope of traditional securities laws.
This is the latest policy for STO in Hong Kong, China, so what are the policies of other countries and mainland China for STO?
At present, foreign countries are mainly guided by US policies. According to the US Securities Law, there are two options for STO issuance: one is to register with the SEC; the other is to comply with one or more relevant regulations. Most STOs are now using the second option, just like early equity financing. For example, Reg D is exempt from registration, Reg D has no financing limit, it is only for qualified investors, and does not require SEC approval. But there is a one-year lock-up period and generally can only be traded between existing investors. If you need to target global users, there are more specific regulations for reference.
Mainland China has not made a clear statement on STO. According to my country's "Securities Law" and related laws, when an issuer issues securities, it must be approved by the China Securities Regulatory Commission and other regulatory authorities. The issuer, securities pricing, securities sales, information disclosure, etc. Continuous monitoring by associations and investors.
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"Global circulation is expensive"
Regarding the prospect of STO, Lin Yang said that the trial of STO has its positive significance.
"If STO can gradually be recognized by the regulatory authorities of various countries, it may have the most direct effect, which will greatly promote the accelerated implementation of the application scenarios of the public chain." Lin Yang said.
After the STO was approved in the United States, it immediately attracted global attention. Many blockchain projects that are financing, and even some physical projects that need financing are eager to try.
Regarding this phenomenon, Lin Yang believes that asset re-tokenization based on securitization under the regulatory framework of various countries is meaningless, and it is somewhat superfluous. However, if assets that cannot be securitized or have poor liquidity can be tokenized first, and then securitized, it is the model that the token economy should have.
"For example, the original sluggish capital such as cattle and sheep will be certified, so that the owner can use digital assets to insure, and then have securities attributes, which can be recognized and circulated globally. STO needs the cooperation of regulatory authorities in various countries to form Standards and specifications can be extended.” Lin Yang said.
Right now, some blockchain companies are also trying to seek the global circulation of STO, but Lin Yang believes that the threshold is relatively high.
"To achieve global circulation of STOs incorporated into the Securities Law, it is necessary for security token issuers to meet the regulatory requirements that vary considerably from country to country, and the cost of compliance is extremely expensive," Lin Yang said.
Li Xiaolai is also not optimistic about STO. He said in a public event that he personally does not think that STO will have much effect on the popularization of blockchain in the future.
"Theoretically speaking, STO is not a new concept. For a long time in the past, many people have been doing this kind of thing, but it has been taken out as a new term recently. I don't believe those non-area It is not in line with common sense that the asset target of the blockchain industry and the concept of blockchain will become popular. It is just some people’s wishful thinking. Of course, I am not denying the role of STO, but I don’t think it is a A trend worthy of attention." Li Xiao said.
As for how far STO can go and how much the market accepts, Li Zhu, founding partner of Inno Angel Fund, believes that it may be necessary to formulate relevant standards first.
He said that the industry has already begun to try to formulate some standards for STO, "such as Polymath's ST-20 standard, the Ethereum community's ERC-1400 standard, etc. I believe that there will be more and more complete standards in the future."
In addition, Li Zhu also believes that in order to realize the true popularization of STO, a public chain that can be implemented, embrace supervision, and provide privacy protection is needed.
