It doesn’t take long to find examples of grossly ostentatious or undeserving crowdfunding campaigns. Consider this Kickstarter campaign by Zack Danger Brown. He requested money to make a bowl of potato salad and received over $55,000 in pledges. The campaign was done in jest, but the $55,000 it generated was no joke.
Potato salad inspired fifty grand in donations. Imagine the sums that legitimate projects bring in, and how thieves and hackers view those fundraising campaigns.
The stakes for security token-funded campaigns are higher than Zack Brown’s potato salad. It’s no surprise that experts examining blockchain’s uses for crowdfunding see compliance with the Securities and Exchange Commission (SEC) as one of the most-watched developments going forward.
Experts anticipate that the SEC will finally establish clear rules for issuing and trading security tokens as a means of crowdfunding. This will hopefully happen in the coming year, but could just as easily take longer.
Experts have also seen a shift away from Initial Coin Offerings (ICOs), a regulatory grey area. This should clear the way for entrepreneurs to engage in token-based crowdfunding without fear of legal repercussions.
Here’s what the experts have to say.
1. Dan Abbate, Founder of 81-c
“The rise of the STO – a regulated security token; or said another way a token that represents a fractional ownership of a company like a stock – will become the standard medium of transparent recording of investments in crowdfunding campaigns and will shortly give these investors the ability to trade on a liquid market as the technology and funding ecosystem matures in the coming few years.”
2. Howard Marks, CEO and Co-founder of StartEngine
“This year we’ll see the first Regulation A+ security token offering qualified by the SEC. A lot of entrepreneurs are waiting for this. Once the first is qualified, I think it will be a breaking of a dam, and more Reg A token offerings will quickly follow. This will allow blockchain companies to get tokens into the hands of more users in a legal way and create true liquidity for these tokenized securities that you can’t get through the smaller investor pools of Reg D offerings. This will give US entrepreneurs a better option to raise capital in the blockchain space and hopefully reduce the number of businesses that take their crowdfunding campaign overseas.”
3. Mark Roderick, Crowdfunding Attorney at Flaster Greenberg
“The continuing emergence of secondary trading. By definition, Crowdfunding involves privately-owned companies. From the beginning, a robust secondary market has been the holy grail of the industry. Blockchain will help facilitate that secondary market.”
4. Florian Bercault, President and Co-founder of Estimeo
“Financial assets being tokenized remains the most innovative solution can provide to crowdfunding in the short term. Either with securities tokens or utility tokens, investors will be able to benefit from new services thanks to the blockchain technology, and it will be of great use for crowdfunding to grow to its full potential. Moreover, tokens can also be seen as a new resource for the valuation of firms’ intangible assets. It will then help to rekindle the enthusiasm around the crowdfunding industry.”
5. Troy Norcross, Co-Founder of Blockchain Rookies
“Regulators will work through 2019 to define the rules for buying, selling and trading tokens used as part of crowdfunding. Different regulations will apply to tokens associated with raising money for a project vs tokens associated with investment in an underlying company where tokens may act as a proxy for a share.”
6. Dr. Richard Swart, Partnership Advisor at CrowdSmart
“This is the year when Secure Token Offerings will emerge as an understood and viable alternative to traditional venture investing. The benefits of liquidity, traceability and international transfers will start the inevitable progression of many security instruments to securitized tokens.”
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