The 2017 bull run introduced the world to the utility token, a coin that had value because it had to be used on a valuable network. There was a coin for dentists and doctors and accountants and just about everything else. If investors thought that the company behind the utility token was going to succeed they were happy to throw money at it. The problem, however, was twofold.
In the first place a lot of ICOs failed, there wasn’t a demand in the marketplace for what they were offering. Secondly, even when an ICO did find a niche where they could generate a profit it didn’t always lead to a high valuation of their utility token. That led to a lot of disappointment and disillusionment. The change was needed and as we move through 2019 it’s finally starting to happen. The Security Token Offering (STO) and the Initial Exchange Offering (IEO) are two investment vehicles that are going to bring a whole new group of investors into crypto.
Why People Who Shunned ICOs Will Invest in IEOs
Anybody could create an ICO, there was very little barrier to entry. While plenty of ICOs were legitimate projects with real plans to improve the world, there were also a fair deal of scams and money grabs. The problem was that as time went on the scammers got very, very good at disguising their projects and it became difficult to discern the good from the bad. As investors became aware of that, they stopped investing, the risk was not worth the reward. The IEO is changing that.
While an IEO can still fail, just as any business can fail, very few of them are scams. The exchanges promoting these startups scrutinize each one and ensure that they are doing what they claim to. That means that if an investor trusts an exchange, and Binance particularly is rapidly building a name for itself, then by extension they’re likely to trust a project launched by the exchange. That increased trust is bringing new investors with more money, as is rapidly proved by Binance IEOs like BitTorrent Token and CELER selling out in minutes.
Not all tokens will be lucky enough to sell out that fast though. Even the best projects can sometimes use a boost and that has led to massive growth in the fledgling industry of IEO marketing and project management. Firms like Priority Token are helping their clients to get noticed in this highly competitive industry and since investors can only fund projects that they know about, good publicity can make all the difference.
How the STO is Going to Capture Billions of Dollars of Fresh Money
Unlike a utility token, a STO represents a stake in a company. If the company does well the value goes up and if it performers poorly the value goes down. This is the model that investors worldwide have been familiar with since the inception of the stock market more than two-hundred years ago. It’s true that you might buy an STO from a crypto exchange instead of the New York Stock Exchange, but the underlying idea is the same. That’s going to allow STOs to appeal to a huge percentage of investors because they’re going to understand it. People who have no idea what a smart contract is, or the difference between Proof of Work and Proof of Stake, will quickly grasp the value of a STO.
Not only that but STOs are going to make micro-investments possible. In the past, it would be difficult, if not impossible, for the average person to buy a small stake in an unusual investment, something like a rare Ferrari or real estate in Guam. STOs are going to change that. Powered by the blockchain STOs will open up the possibility of putting in $50 or $100 at a time. That will make investing possible for tens of millions of people who could never get exposure to atypical markets before.
Combine that with the overall trend in cryptocurrency towards banking the unbanked and it’s possible to see how massive STOs and IEOs could become and how they’re going to change the entire cryptocurrency ecosystem for the better.