ORIGINALLY PUBLISHED ON BLOCKTV
If you haven’t heard of the term STO in the past 4 months you’ve probably been hiding under a rock, or…well…in a coma or something. It’s the new faith and guiding savior of our blockchain crypto industry. It’s the new Coke Zero, the new Twerk dance by Miley Cyrus. I think you get the point. Our beloved blockchain industry loves buzz words and labels; HODL, MOON, and FUD are my top 3 favorites. Then we have DAO this, ICO that, STO this, DAAP, DEX and the list goes on. We don’t just include these buzz words into our daily convos, pitches, and presentations…no we drive them into the ground, print them on t-shirts and swag, create emojis and memes, hang giant conference billboards, and label them alongside your company name if you pay a hefty sponsorship fee, on dancer’s neon light full body suits performing in crypto conference after-parties to dark house beat soundtracks.
STO is going around so much, even my mom asked me what it was the other day. Bear in mind, she’s 72, retired, and NOT a crypto enthusiast. Wait…did I just drop another buzz word? Oy vey! even I’ve become a parody of this industry.
The point I’m trying to make is that you never buy a used car without lifting up the hood and doing a thorough inspection. Sadly enough, many people in the world still don’t have that common sense and love sucking on lemons; I guess nothing is different in the blockchain industry either.
Regulation Is Key To Success
So our holy grail, the altruistic guiding light STO…Or, the United States’ way to get a firm grip with their paws around tokenized investment vehicles, tax gains, and lastly, the protection of the common man getting suckered in to investing in $#!% coins. Firstly, let me add a disclaimer here. I believe STOs are genius, just as ICOs are. I’m not one of those decentralized utopian haters who’s too short-sighted with ICOs to see the true innovation and value. The fact is, the public fundraising vehicles of our industry DO need to be regulated. The real question is to what degree, how much, and WHO should be making these decisions. Is it solely the government without a democratic consensus? Or should there be influence and decision-making by the REAL experts of this industry who are innovating our future, along with the government.
Let me tell you a little story on why we need a form of regulation. I was just in Malaysia giving a keynote presentation at a blockchain and crypto conference, on raising capital and the market outlook in 2019. As any global blockchain business man knows that when not in meetings or making appearances, it can be counterproductive being cooped up working in your hotel day in, day out, so I decided to hit a local coffee shop to change up the scene. While there, I struck up a convo with a local Malaysian mid-40s gentlemen with broken English, who seemed curious about this random American sitting there working on his laptop wearing Versace glasses. As I told him what I was doing in Malaysia, his eyes lit up and in mid-sentence he enthusiastically cut me off and began telling me about this crypto investment opportunity he was being solicited. He wanted to get my advice as it was a big chunk of his savings, and he didn’t know much about this industry. He quickly whipped out his phone and showed me WeChat messages between him and a rep from the ICO startup. As I was reading phrases like “just $5,000 investment, guaranteed 10,000x gains, become instantly rich, etc.”, I became overwhelmed with anger at this blood sucking leech taking advantage of this gentlemen. I immediately told him anyone saying statements like that is a scammer, and you should erase that chat, followed by blocking them. So…that is the world we live in. It’s not all puppy dogs and kittens as they say.
This is why there needs to be regulation in some form, but should we all let the government, in particular the US which every other nation follows, solely set the framework for this? Before I pull back the curtain on STOs, let’s shed a bit of light on the US government’s past “purely successful” track record.
Even Our Trusting Governments Are Flawed
Former US Congressman and Presidential Candidate Ron Paul, who is a crypto advocate recently stated in a blog post that “the Federal Reserve System is as unworkable and doomed to failure as every other form of central planning.” To further my leading point, the one and maybe ONLY thing I can agree with our Reality TV President Trump is his views on US corporate and capital gains tax laws. For decades prior Apple, Google, IBM, Microsoft, and many other US companies tried to work with the government to find a middle ground to corporate taxation, but Uncle Sam wouldn’t budge. Hence, the US giants utilized every legal tax loophole and kept approximately $1.17 trillion of their company’s income off-shore. Funny enough, it took a Reality TV star business man to make some changes this year with his Tax Reform Plan. For all U.S. companies including tech giants Apple, Microsoft, etc., Macquarie Research estimated roughly $860 billion will be repatriated this year.
Now we all know what happened in the US in 2008. One of the biggest economy crashes ever. With the US having the highest global GDP and global debt, this did not just affect the US, but effected the markets on a global level. This was not caused by the public or common man, but completely caused by our financial government system and Wall Street. The moral of this example is two-fold. One, our financial and governing systems need to be held accountable for their actions, detrimental mistakes, and need a large overhaul immediately. Secondly, the use of blockchain technology to create a decentralized, connected, and real-time monitored banking system would have completely prevented this catastrophe. Even with the greed driven callous behavior of Wall Street and the Government’s “look the other way” mentality, this would have been 100% prevented by use of blockchain. Though mass adoption and technological advances were not there at that time, nor are they now, this still shows the power of this technology for the better good of our societies. Also, should I mention a decentralized financial system utilizing blockchain, coupled with Machine & Deep Learning, and Ai is a technologically advanced self-regulating system that would do a far better job than humans.
Whats All The STO Hype About
I hope you get the picture of whose in charge. We can now get back to STOs. I’m going to speak high-level as diving into full regulation details would put you all and myself to sleep. The bottom line is STOs are exactly like a traditional IPO or capital raise, but run on blockchain which provides many innovative and valuable attributes, like direct liquid economic interest, expedited tracking, transferring and delivery of proceeds, cross-border investment, communication, ability to tokenize very type of ownership which creates a massive trillion dollar addressable market, and then a huge secondary trading market once liquidity develops.
On the other hand there are many downsides, which I see many communities and so-called experts in the blockchain world completely and ignorantly disregarding (quite laughable), as they run around waving their savior STO cross at conferences and in posts on LinkedIn without a clue of what they’re getting into. Launching an STO means companies are completely regulated by governments furthering a complete centralization of public token offerings. What this does is, open companies up to extremely higher scrutiny, legal and underwriting costs, expanded legalities, accountability, real time regulatory monitoring, and complete unobstructed access and power over your company given to the regulating bodies that govern. Plus without a central global uniform standard or regulation, launching STOs in other countries could be quite impossible, and bring about another set of high underwriting costs per country. So much for decentralized freedom eh? Do these experts truly understand how non-US (there are some in the US) ICOs, top exchanges, and ICO funds have actually risen to power, raised insane capital from the public, created extreme trading volume sizes, etc? Well…STOs will take all that freedom away completely. I know I mentioned more verticals than just ICOs, but the point goes for every single one of them, if they should succumb to a centralized regulated governing body controlling them.
STOs Are Not Best Suited For Pre-Rev Startups
If the rest of the world follows the US’ Reg D only (unless they finally approve Reg A+) it will not be suitable as a capital raising tool for pre-rev & user startups because of high underwriting costs, limited accredited investor market size, and a lengthy token hold for those investors. Reg D will create major risk aversion for investors with these beginning stage blockchain startups, especially after the shaky history of ICOs that we’ve seen. That’s what really needs to be understood here. If the US approves Reg A+ and other countries follow or create similar regulations than STOs could work for beginning stage startups. Bottom line is that STOs are NOT a replacement for ICOs. They are for very different types and stages of companies, sectors, users, and investors. They will co-exist together for hopefully our entire future or until a new innovative funding vehicle is created.
In conclusion as regulation for STOs are still being figured out globally, and ICOs have taken a beating, we the people of society, experts of industry, innovators of the future, have a voice and should be listened to. I want to hear from you all, whether you agree or not. The point is that we need constructive and productive discussions to create change. Let’s design a framework of innovation together and build a better future for our world.