This is Where STOs are Ahead of the Rest Crypto Industry
The digital securities industry is already ahead of the rest crypto industry in terms of KYC (know your customer) processes, so the impact of the so-called Travel Rule should be minimal, Carlos Domingo, founder and CEO of security token platform Securitize, told Cryptonews.com.
As a reminder, the 'travel rule', which is a new thing for many virtual asset service providers (VASPs), such as crypto exchanges, necessitates that these companies share customer info with each other, so that one exchange can confirm, for example, that a customer on another platform it’s sending 10 bitcoins to has a verified identity.
And while exchanges and other VASP’s are still trying to implement the new rules, introduced by the Financial Action Task Force (FATF), the security token industry already has a solution in place.
“For example, all securities running on Securitize's DS Protocol can only be traded to wallets that have gone through KYC procedures with either the issuer of the digital security or a regulated [alternative trading system] on which the digital securities trade. This ensures that there are always on-ramps conducting appropriate checks on prospective investors and transferees, whether that be the issuer or a regulated actor such as a broker-dealer,” Domingo explained.
According to him, this protocol will prevent any trades that attempt to be made to an unknown wallet.
“If the wallet is known, the trade will then only go through if it doesn't violate certain transfer restrictions. So, there's a two-step process to trading compliance in the digital securities market that the crypto market, for the most part, hasn't experienced yet,” he concluded.
However, while the security token industry might be ahead in implementing new rules and despite being hailed as the new ICO (initial token offering), STOs (security token offerings) have not managed to raise similar amounts as the ICO market, which is in a decline now.
Between January and May 2019, eight STOs raised USD 241 million with the biggest offering being BoltonCoin, which garnered over USD 68 million from investors, according to the 5th ICO/STO report by PricewaterhouseCoopers (PwC). In 2018, the STO market raised USD 444 million. In comparison, a total of USD 3.3 billion has been raised through various token offerings between January and May 2019. In that period, 250 token sales were held. In the same time period from 2018, there were 537 token offerings that raised USD 13.7 billion during the same period.
PwC noted that extrapolations indicate the continued growth of the STO market saying: “From Jan until May 2019, positive development of STOs continued and is expected to carry on throughout 2019 and 2020 – assuming regulation of STOs strengthens and larger, regulated exchanges support STOs.”
“STOs are significantly more complex than ICOs given the regulatory restrictions around who can participate per each jurisdiction. ICOs, in contrast, do not control who can and cannot participate,” Domingo added.
In either case, he hopes that we will continue to see the growth of STOs “as a funding mechanism as the overall experience of investing in STOs becomes smoother and simpler and we see increased options for liquidity.”
STOs afford their owners with a greater level of ownership in comparison to ICOs/IEOs (initial exchange offerings) and were borne out of the need to comply with increasing regulatory scrutiny across the world.