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Token Sales Thrive Again, but Uncertainity Remains
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Initial Exchange Offerings (IEOs) have exploded in popularity in the past year, spearheaded by Bitfinex, Binance, and other large exchanges. However, intensifying regulatory pressure and investor concerns have caused some to double-think this crowdfunding strategy.
The IEO is propelling the ICO model forward to a new paradigm. However, the fact that IEOs continue to avoid banks and venture capital firms puts it in uncertain waters for some.
ICOs and IEOs: Same Thing?
As the NY Times reports, the differences between IEOs and ICOs are largely in name only. According to Peter Van Valkenburg, director of research at Coin Center in Washington, “I don’t expect IEOs to result in better outcomes… from a regulatory and legal standpoint, there’s not going to be much difference here.”
The SEC has been keeping a close eye on all these developments. If exchanges are acting like broker-dealers, then cryptocurrency exchanges could run into problems with the SEC according to Valerie Szczepanik, the SEC’s senior advisor for digital assets.
There’s enough precedent to be concerned. The SEC has previously brought lawsuits against unlicensed crypto broker-dealers, like TokenLot and others. The IEOs also do not have the due diligence required for KYC requirements, and there seems to be nothing different from IEOs to the older, ICO craze which brought with it much risk and scams. With no standardized vetting process, the IEO model could run into similar issues.
STOs Provide Us with a New Way Forward
IEOs have not proven themselves to be trusted as anything other than glorified ICOs. However, security token offerings (STOs) provide us with a legal, compliant framework where a cryptocurrency-based crowdfunding model could work.
Many have been working behind the scenes to make this a reality. However, it will require strict KYC measures and oversight many in the industry was not ready to comply with. Still, there is an indication that major exchanges are coming around to these concerns with Binance expected to open a compliant American-based exchange sometime in September.
So, why the take the risk on IEOs if STOs provide us with a more secure, less risky alternative? It’s time for the industry to mature.
Do you agree that IEOs are still too risky? Are they just like ICOs but with extra steps? Let us know your thoughts below.
Image courtesy of Coingape.
Tim Fries
Tim Fries is the cofounder of The Tokenist. He has a B. Sc. in Mechanical Engineering from the University of Michigan, and an MBA from the University of Chicago Booth School of Business. Tim served as a Senior Associate on the investment team at RW Baird's US Private Equity division, and is also the co-founder of Protective Technologies Capital, an investment firm specializing in sensing, protection and control solutions.
