Stated in a recent article, Hong Kong forbids Security Token Offerings (STOs). However, if you read the article, it also goes on to say that if you have the correct regulatory licences, you can sell STOs. STOs are now widely accepted as being seen and treated by regulators as a security, in the same way as buying a share in a company, like Apple or BMW, is processed. It is not illegal to sell these shares to raise capital, but the company, i.e. Apple or BMW as well as its corporate broker, need to follow the correct regulations in each jurisdiction around the world.
The reason behind treating STOs as securities are because they typically are backed by real assets such as property, commodities, bonds or indeed shares in private or publicly quoted companies. Due to the need to be regulated, STOs costs to raise capital are higher than Initial Coin Offerings (ICOs). Different regulators globally have taken different stances to ICOs; several of them saying that regulation of ICOs is not the same as those used to regulate the buying and selling of cars and houses. While some countries have banned Digital Assets, others have passed legislation to encourage the issuance of these assets.
PWC’s 4th report on ICO/STO looked at global trends, the amount of money raised and how legislation is evolving. One of the trends which PWC highlighted is “Asset tokenisation, i.e., the conversion of real-world assets to the Blockchain, is a dominant trend in 2019”. As we see greater clarity from regulators, we are more likely to see increased use of Digital Assets by institutions. If this creates more liquidity and the ability to trade 24/7, many assets, restricted to standard trading hours today, could result in Digital Assets being a compelling alternative and potentially may reduce asset price volatility.
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