New Fund Raising Method－Security tokens offering
While Initial Coin Offering (ICO) as a fundraising mechanism that the company issues original tokens and investors purchase them has gained a lot of attention for the last few years, there were many cases of failure in businesses and misuse of unrestricted method in the projects using ICO. ICO has some problems as the fundraising method and created the situation that the authorities need to impose rigorous regulations for ICO to protect investors and increase the transparency of business operations. Take this into account, investors have started to search certainty, and extensive regulations and rules were established. Now STO which represents ownership rights in an underlying investment assets is becoming more popular and expected to be an optimized mechanism to replace ICO.
STO is an investments that are actually backed by tangible assets like real-estates, golds, securities, which is issued as tokens on the blockchain platforms and offer dividends when the token value goes up or tokens as revenue distribution when the company you invested with a small percentage of token gain profits.
Advantages of STO
Reducing Costs and Increase Efficiency : The distribution of financial products and real-estates requires involvements of various institutions including broker-dealers, legal and compliance counsels, and entails huge amount of time and efforts by communicating through piles of documents. By shifting this to STO, communication will be automated and the process of issuing and distribution will be efficient because of the smart contract application.
Increasing Liquidity : If the tangible assets are tokenized and managed on the blockchain, they can be traded 24 hours a day, which means the market access barriers due to different countries and regions would be removed. Moreover, by issuing tokens as units of assets, a large asset can be owned by multiple people (ownership segmentation), which enables more people can enter the market and the market liquidity can be improved. The real-estate industry is expected to greatly take advantage of this benefit.
Blockimmo, the company for real estate tokenization in Switzerland where blockchain technology thrives is one of the examples of this kind of business operations.
The first tokenized real-estate transaction in Switzerland
Blockimmo Ltd, the platform for blockchain real-estate transaction based in Crypto Valley in Zug, Switzerland along with two other companies, Elea labs, real-estate technology company and Swiss Crypto Tokens, a provider of comprehensive services related to the issuing of original tokens, have jointly completed the first “tokenized real-estate transaction”.
The property successfully completed the transaction is in Zug. The 20% of property asset value or 3 million CHF (=US$ 3 million) is tokenized and sold to 4 investors.
Elea Labs allocates ID or Property DNA to each property and provide real-state building data. Swiss Crypto Tokens issues “Crypto Franc（XCHF）”, original coin, linked to Swiss franc to avoid the price fluctuation risks. By using the Blockimmo platform, the transaction details are recorded on the Ethereum blockchain.
Blockimmo limits this transaction’s availability only two places for now, Switzerland and Lichtenstein where it can be fully regulated. However, in the near future, they plan to expand this platform to other countries in Europe
By trading tokenized real-estate on blockchain, the real-estate can be purchased even with a small amount of money instead of large sum that was necessary for property investments to this date. Thus, we can predict that the available real-estate investment opportunities will rise. Blockimmo is planning to tokenize further properties. By the second quarter of 2019, all the real-estate token will become listed on the recognized exchange. The cost reduction and simplification are expected by changing the existing market operating hour to 24 hours a day, removing intermediary companies and using smart contract.
The company aims for this business model to become the platform of choice and to become the internet sales giant Amazon of Real Estate in the real-estate tokenized market.
STO in Medical Development in USA
Healthcare firm Agenus, an immune-oncology company, has announced launch of US $100M security token offering. This token is called Biotech Electronic Security Token(BEST)and is the first STO in Biotechnology industry.
The investments in the healthcare have been available to this day, however, this investment differs from the other healthcare investment as it enables investors to directly invest in a single drug or a single medical product. The investors can reduce the risk, because their investments are not affected by the company’s revenue and the results of other projects. The first BEST security token offering, their latest stage candidate AGEN2034 has announced. The company aims for development and commercialization of AGEN2034 at a faster pace by using the funds raised by BEST.
Garo Armen, CEO for Agenus has said
“we announce the first financial products based on digital security offering in the healthcare industry. We opened the door to new financial investments. This unique fundraising method enables for investors to directly invest in the development of medical products. We believe that this method provided by blockchain will revolutionize the pharmaceutical industry.”
He also said that BEST as a way to revolutionize the financing of drug development and “democratize” financing.
We see more companies are utilizing STO as it brings more liquidity and reduces costs. Although some countries steadily progress establishment of infrastructure and a regulatory system related to STO because the arrival of STO boom is expected, it faces some challenges that the regulation varies depending on country and region and the compliance is more complicated than ICO. It is still at an infant stage. However, the superiority of merit is obvious, so it is expected that STO will take over ICO