Before he could make the Model T the most popular vehicle in the United States, Henry Ford first had to perfect the assembly line. The Wright Brothers had to prove that short flights were possible before modern air travel could carry us around the world.
Just like any innovation with great potential, security token offerings (STOs) and other blockchain-powered crowdfunding mechanisms have to work out their kinks and prove undeniable value before they can go mainstream.
That’s the primary challenge that experts see for blockchain in crowdfunding: convincing the public that the blockchain adds value to users of existing crowdfunding platforms. Finding ways to push back against apathy and ignorance is critical to these new crowdfunding platforms finding success. Participants need to understand that they’re receiving value beyond traditional crowdfunding methods if they’re going to use them.
Other industry movers point to still-unclear regulation as a hurdle to leap. Will non-accredited investors be eligible to participate in STOs? If so, will they be knowledgeable enough to do so? And will the pool of buyers and sellers be big enough to sustain a liquid marketplace?
These are all questions remaining to be answered, and those answers will determine the viability of blockchain as a crowdfunding tool.
1. Dan Abbate, Founder of 81-c
Crowdfunding, by nature, is intended to raise smaller amounts of money by larger groups of people. If the regulatory process only allows for the accredited world to participate and the non accredited investing public isn't educated on the benefits of blockchain and tokenization, then we will just be recreating what already exists. And all investors want liquidity which means the market must be sufficiently large with buyers, sellers, and products (i.e. STOs). We just have to get everyone working together in one marketplace – it can be global and distributed, it doesn't have to be a monopoly somewhere – in order to reach our shared vision of a blockchain based funding system to rival the traditional stock markets of the world.”
2. Howard Marks, CEO and Co-founder of StartEngine
“The biggest challenge is creating liquidity for investors. At this point, a few trading platforms have executed one-off trades, but they represent proof-of-concept more than actual liquidity. I think we will see more broker-dealer ATS trading platforms go live in the near future, which will help, but the other half of the equation is getting more tokens into the hands of investors. We need time for that, time and a few great investment opportunities that get investors excited enough that ten thousand of them participate in a single offering.”
3. Dr. Richard Swart, Partnership Advisor at CrowdSmart
“I believe there are fundamental flaws with ERC20 tokens, which when coupled with the lack of security around wallets and theft of crypto, means that a more secure framework has to emerge. Soon there will not be a distinction between the industries – all crowdfunding will eventually migrate to securitized tokens.”
4. Douglas S. Ellenoff, Business Law Attorney at Ellenoff Grossman & Schole LLP
“While blockchain as a technology is a dramatic advance of technology with broad applications, it isn’t a fundraising technique in and of itself without a true business opportunity. Investors need to review the blockchain initiative like any venture opportunity and not invest in anything merely because it is an STO. An STO, in my opinion, is merely a security with an embedded transfer agency technology as part of it which keeps track of the ownership of the instrument. Is it an improvement? Yes, but transfer agents perform many other functions.”
5. Bryan Myint, Managing Director of Republic Crypto
“Transparency disclosure. Private companies are sometimes afraid of disclosing financials in such an early stage because it might scare off potential investors. Crowdfunding requires transparency in every stage of the investment process.“
6. Mark Roderick, Crowdfunding Attorney at Flaster Greenberg
“Blockchain faces the same challenges in the crowdfunding industry that it faces in every other industry — providing a compelling value proposition in a way that can satisfy existing laws. Blockchain technology is amazing, but it has proven more challenging than expected to integrate blockchain technology into existing systems.”
7. Florian Bercault, President and Co-founder of Estimeo
“Opinions on Blockchain tend to be polarized from one extreme to another. On one hand, it struggles to convince the most sceptics about its added value. Dubious of the system, or afraid by the recent hacking, they will need to be reassured first. On the other hand, some people over speculate about the cryptocurrencies and the blockchain’s disruptive abilities. Instead of supporting it, they fuel up – rightly and wrongly – the mistrust. There is therefore a matter of putting in perspective all the mixed feelings, upward for the pessimists and downward for the overly optimists, before reaching a global consensus. The blockchain isn’t perfect (in terms of energy, for example), but it doesn’t change the fact that it is an extremely efficient solution for many financial sectors, crowdfunding in particular.”
8. Troy Norcross, Co-Founder of Blockchain Rookies
“The biggest challenge is the lack of regulatory guidance. To be clear – the challenge is not about regulating blockchain, it is around regulating different types of crowdfunding which may use blockchain technology as part of the solution.”
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