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5 Reasons why ICOs Crashed and why Security Tokens are the Future – Opinion




5 Reasons why ICOs Crashed and why Security Tokens are the Future - Opinion

There are numerous reasons why the market is punishing crypto, and more specifically utility tokens.

Below are some of the major factors which have led to the crash.


Flawed Business Concepts:

While there are some valid projects in the space such as Factom, and Stellar, most projects are either outright frauds, or at the very least, awful business concepts.

I’ve been contacted at least twenty times by different projects who plan on being ‘Uber on the blockchain’.  In this case the business model features paying drivers in cryptocurrency so that they can cut out the middle-men.

I initially inform these Uber clones that General Motors, Tesla, Uber, and Lyft are all planning on releasing autonomous vehicles within 5 years. Afterwards, I proceed to ask how they plan on tackling this challenge. Generally, they have no answer. In other words, they plan on disrupting Uber by paying drivers in crypto, while Uber are busy disrupting themselves by removing drivers.

Another example are projects which advertise themselves as ‘AirBNB on the blockchain’. Ask how they plan on marketing and they have no idea. They somehow expect the average consumer to want to purchase bitcoin, transfer the bitcoin to an exchange, purchase the companies token, and then transfer that token to the ‘AirBNB clone platform’.

This is not user friendly to simply book a holiday. If you ask these companies how they will monetize, often it involves the value of their tokens increasing. A sloppy business with no actual business plan, one example of this are Bee Tokens.

Nowhere do these ICOs validate how they will market the product, or how they plan on earning money. The reason is that 90% of these companies have no intention of earning money from the business, they only look at raising money from the ICO.

The same could be applied to dozens of other verticals which ICOs claim to disrupt such as advertising, affiliate marketing, data storage, esports, healthcare, etc.

While there will be some bad businesses conducting STOs the numbers will be reduced. Institutional investors will be more demanding, and the added regulatory environment helps ensure that STOs are more transparent.


Exchange Greed:

There are 2 types of businesses that raise money from ICOs. The fraudulent ones which have the goal of raising money and hyping the product, and regular start-ups.

Start-ups operate on a tight budget, they carefully measure the burn-rate, and attempt to stretch raised capital as much as possible. Funds are used on payroll, rent, and other operating expenses. They cannot afford to pay 40 BTC to list on HitBTC, or up to $3,000,000 to list on Binance.

Meanwhile fraud projects ‘invest’ raised funds into listing fees. The ICO reserves some of the raised capital for marketing, and the rest is kept as profit for important assets such as ‘lambos’.

Who does the market reward?

Often, the market rewards the fraudulent companies which can afford to pay exorbitant listing fees. The success of an ICO is dependent on marketing and hype instead of actual product adoption or market penetration.

Exchanges should be profiting from trading, not from listing fees. Credit should be given to Bittrex for being one of the few exchanges with no fees. Legitimate security exchanges will not charge anything more than basic listing fees, ensuring an even playing ground for legitimate businesses.


Hard Forks:

The theory is that forks are evolution, there’s a disagreement between management, and both parties go their own way to then ‘fork’ the code. The best fork then wins.

While there is some validity to this theory it causes numerous issues as outlined:

  1. Market Confusion – The average consumer considers purchasing bitcoin. Now they must somehow learn to differentiate between the various versions which include: Bitcoin Gold, Bitcoin Diamond, Bitcoin Dark, Bitcoin Cash ABC, Bitcoin Cash SV, Bitcoin Private, and Bitcoin.
  2. Dilution of Brand – If there were 15 versions of Apple products by 15 different companies named Apple, it would dilute the value of the brand. The same applies to Bitcoin or any other fork. The more forks, the more the value will decrease. The worst thing that happened to Bitcoin was Bitcoin Cash.
  3. Magic Money – The entire concept of Bitcoin is that there’s a maximum limit of 21 million coins. Every fork then teaches the market that this maximum limit is arbitrary, as you can keep on ‘forking’ or duplicating this 21 million into infinity. It destroys the limited supply concept.

Digital securities cannot be forked, this ensures the integrity of the brand and removes market confusion.


Price Volatility:

There are two problems with Bitcoin being as volatile as it is currently is.

  1. When the price begins to crash, merchants do not want to accept it. Some industries are super competitive with tight profit margins, they cannot afford the risk of accepting Bitcoin unless it’s converted immediately to fiat.
  2. When the price escalates as it did in December 2017/January 2018 the opposite problem occurs. Consumers do not wish to spend Bitcoin as they know they are losing money, instead this price escalating causes hoarding behavior.

Both above problems cause market friction and deter user adoption. Stable Coins which were the first true security tokens can solve this issue.


Hacking and User Error:

Using cryptocurrencies is difficult and unforgiving. It requires storing private keys, hoping that the keys are never compromised, and that the user will never make an error. It requires humans to be perfect and to behave like machines.

The average person does not want to be stressed out by losing private keys. This alienates anyone who is not tech savvy and who does not live and breathe crypto.

Cryptocurrencies are an area of vulnerability for merchants. They know that if the funds are hacked, they can never be recovered. This begs the question, why would they bother with the risk? It’s one thing to worry that a bad staff member might empty out a cash register for $500, it’s something else to worry about them stealing 1000 BTC.

This same problem is why institutions are not wanting to invest in crypto. When you are dealing with a billion dollars in volume, the last thing that you need to worry about is a potential $200 million heist.

I do not foresee any type of real market adoption for any token unless it has some type of KYC baked into it.

Security tokens solve this problem, they have KYC baked into the token which means if the token is stolen, that compromised token can then be destroyed, with a new token being reissued to the rightful owner. This simple feature solves the issue of hacking, lost private keys, etc.



Institutional money has seen the writing on the wall when it comes to utility tokens for many months now. They have reduced exposure to these assets to focus on tokenized securities. This has further driven down the price of most utility tokens.

While it is undeniable that there are many issues outside of the 5 that I have highlighted, I believe that these are some of the fundamental problems which have led to the market crash. Digital securities in the form of security tokens will be the next wave of crypto.

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Antoine Tardif is the CEO of, and has invested in over 50 blockchain projects. He is also the founder of a news website focusing on the lightning network, and a founding partner of

Thought Leaders

Security Tokens or STO – When any Asset Becomes a Digital & Immutable Proof of Ownership – Thought Leaders




Security Tokens or STO - When any Asset Becomes a Digital & Immutable Proof of Ownership - Thought Leaders


The regulatory scrutiny has morphed into a permanent reality in the crypto space. This much had become clear in early 2018. Regulators from all corners of the globe are looking to fit the crypto phenomenon into some regulatory rules or framework. The main question however is to discern what crypto assets are? And whether crypto assets are securities? If they are, then the relevant law must be applied.

In the US, Securities and Exchange Commission (SEC) had announced that all crypto assets are investment contracts or – securities. This later corrected that all, except for Bitcoin and Ethereum (in its present stage) are to be deemed securities. 1 files/2019-03/clayton-token-response.pdf

The reality is the American legal system largely still relies on the 86 year old Securities Act, with exceptions made available with enacting the JOBS Act in 2012. And within this amendment, there is a place for security tokens to be issued as well. Small issuances of up to USD 1m can be effected as crowdfunding projects. Larger deals can be done as private placements or public offerings limited to accredited (professional or high net worth) investors. Either way, the registration of the issuing security is mandatory. It is likely that the Securities Act may see a major revamp to exclude most cryptocurrencies from the scope of federal securities law. 2 In the meantime, the most recent discussion identifies guidelines on how to assess if the publicly offered or sold digital asset is an investment contract and therefore a security. 3

In Europe, on the other hand, the European Securities and Markets Authority (ESMA) has called to extend Europe’s revised Markets in Financial Instruments Directive (MIFID II) to include cryptocurrency products such as initial coin offerings with securities features among transferable securities or other types of financial instruments. 4 European Prospectus Regulations will apply in full from 21 July 2019 and replace the current directive. Under the Regulation each EU member state will be able to set its own limit between 1 and 8 million EUR when the mandatory prospectus requirement applies.

On the brink of Brexit, the UK’s Financial Conduct Authority (FCA) published an extensive consultation paper on the classification and regulation of crypto assets. 5 The paper seeks to provide regulatory clarity for firms and consumers, when certain activities around “cryptoassets” or tokens themselves fall within the FCA’s regulatory perimeter. The FCA reminds that the breach of authorisation regime is a criminal offence and carries a maximum penalty of 2 years imprisonment or an unlimited fine, or both. Following the consultation period, FCA intends to publish the final Policy Statement in relation to cryptoassets by summer 2019.

Other pioneering jurisdictions, such as Switzerland, Malta, Estonia, Lithuania, Liechtenstein have reviewed the types of crypto assets and proposed a classification thereof.

All the above mentioned jurisdictions offer more-or-less similar classification of tokens. Largely separating tree or four types. It is a matter of not so distant future, when every national regulatory body will be compelled to put out their opinion or guidelines on the subject.

Tokenisation digital and immutable proof of ownership

The rise and fall of the ICO exuberance has resulted in setting a firm precedent in demand for tokenisation. It has also set an example for how the future of securities will likely look. There will always be a law governing securities issuance. But there also will be a decentralised reflection of the issued securities on the blockchain. With transparent protocol implementation, everyone should be able to access smart contract specifications and assess overall market interest.

The IEO or initial exchange offering appeared to remedy some of the most lacking aspects of a typical ICO, such as reliability, custodianship, vetting, transaction speed, cost, and sales channels. But it is yet to be seen, if it turns out to be the most appropriate utility token issuance method. After all, tokenisation is adding to a healthy competition amongst issuers and issuance platforms.

A legacy exchange listing cannot be applied to tokenised securities. Legacy exchanges lack understanding of the underlying technology and regulatory clearance. This is why there are many new technologically advanced initiatives, looking to set up a regulated space for security token listing and secondary market.

For a small-capital company a KYC/AML compliant STO campaign can be considered as an alternative way to access funding. Tokenising businesses by offering equity tokens, revenue sharing or raising capital with debt tokens may become an inevitable part of a company funding life cycle. A security token offering may be equaled to initial or subsequent equity or debt offering in the form of a digital token.

When asset becomes a digital and immutable proof of ownership to a global community, that is when we have created a democratic access for everyone to participate in the growth of the global economy. Today, not all countries have harmonised securities laws. But we are well on the way to lowering barriers of entry for both investors and issuers.

About the author

Liza Aizupiete, the Managing Director of Fintelum, which serves the crypto industry by carrying out a technically sound and KYC/AML compliant token sale process, crypto funds co-custody, transfer agency, secondary token OTC desk and corporate actions.

Previously Liza was a founder and the Managing Director of a cyptocurrency exchange Globitex, as well as the General Director of Lithuanian e-money institution NexPay UAB. A Latvian native, Liza graduated from the University of Geneva, Switzerland, majoring in Philosophy. Liza is experienced in the financial industry, including trading, fund and portfolio management. Since 2012, she has become passionate about Bitcoin and later crypto industry at large, as a proponent of a decentralised and sound monetary system.

About Fintelum

Fintelum is a comprehensive ICO/STO token launch platform for businesses looking to tokenise their assets in the form of utility, equity, debt and other asset or revenue sharing token. Fintelum suite of services comprises a regulated KYC investor onboarding, and continuous compliancy with the EU AML laws. The token sale process can be followed through a tailor made dashboard. The backoffice system allows data access and management as well as on-demand reporting. In addition, to help mitigate token sale process risks, Fintelum acts as a crypto currency co-custodian. The system incorporates an integrated multi signature cold/hot wallets. To serve the security token industry, Fintelum acts as a transfer agent, ensuring security token ownership amongst whitelisted investors. Fintelum is also able to provide secondary token OTC exchange desk functions, with ongoing corporate action services, such as voting, dividends and announcements.

Learn more at


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Security Tokens or STO: Evolution in Capital Markets – Thought Leaders




Security Tokens or STO: Evolution in Capital Markets – Thought Leaders

From the traditional private equity or debt to less conventional crowdfunding. The most recent tokenisation method is the next step in the evolution of the capital markets.

Often ICO token issuers made public promises regarding future increase of value of their token. Such claims are deemed to be promoting securities, according to regulators. There were additionally cases where ICOs blatantly disregarded their roadmap commitments. Around the same time as some bad ICO apples were falling, and regulatory scrutiny was increasing, STO or security token offering ideas became vocal, as the natural continuation of the ICO industry.

Indeed, STOs make more legal sense, but much less retail buzz. The times of raising hundreds of millions for a white paper idea are definitely gone. But it is the contention of the author of the present article – that does not mean all ICOs are dead. There still can be cases of utility represented by a smart contract token.

However, if there is no utility or service on offer, then it is likely a future profit distribution, or outright corporate rights exercise. In other words – a security.

A security is a legally defined financial asset that can be traded or exchanged. A legal definition however varies by jurisdiction. The main categories are equity or debt, or derivatives thereof. Securities are offered by an issuer. The primary offering of a security today can be done either through crowdfunding, private placement, or full- fledged public prospectus offering. Depending on the amount and jurisdiction, either option would constitute an issuance of a security.

A tokenised security offers a combination of advantages of both the ICO practice as well as the existing securities laws. On the one hand, an STO complies with the law to the letter. And on the other hand, an STO offers a similar promise of an immediate (or delayed in case of legally required lockup periods) liquidity.

There are no “securities token exchanges” to date (April 2019). But there are quite a few initiatives looking to obtain regulatory authorisation to run a securities exchange for the modified securities asset class – security tokens. Potential way of exchanging security tokens would be OTC desks provided by ownership transfer agents such as Fintelum. See more below.

The main difference that sets security tokens apart from non-token securities is the actual blockchain aspect. Now in stead, or rather in addition to regulatory requirements, such as registration of certificates, shares, bonds and debentures – a smart contract is issued representing the registered rights and obligations of the issued security, whereas bearer securities could be most effectively tokenised.

Investors or participants of an STO are typically cryptocurrency users, but not necessarily. STO practice will continue the path carved by the ICO industry in setting the use cases for cryptocurrency at large. The STO offer is not so democratic than ICO used to be. Security token offering is much less frictionless than it used to be with utility tokens.

Today, the potential buyer of an STO will need to overcome burdensome KYC/AML profiling process to be compliant with the sales of a security. And often try providing the impossible – the accredited, sophisticated or professional investor status. And depending on the jurisdiction and the project offering, the pain levels may vary. This is why, an STO issuer should have an attractive proposition on the table to be able to attract investors.

Security token or tokenised securities?

As a note of importance, not to confuse the two concepts, well posted out by Noelle Acheson in her piece 6 Security tokens are the subject of our present article. Whereas tokenised securities are a token representation of an already existing security. For example, an Apple stock may be tokenised and traded on a separate exchange than the original stock is traded (eg.: APPL ticker, traded on the New York Stock Exchange). Although it is questionable, but there seem to be attempts at listing tokens that allegedly represent an Apple stock 7

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Security Tokens or STO vs Crowdfunding, ICOs & IEOs – Thought Leaders




Security Tokens or STO vs Crowdfunding, ICOs & IEOs - Thought Leaders

Crowdfunding and ICO a step in evolution of capital markets

ICO acronym abbreviates to “initial coin offering”. But the practice stems from small capital funding method known as the crowdfunding.

In 2009 a US company called Kickstarter launched and successfully continues today to promote and facilitate funding of creative ideas and products. The idea is to pre-sell some product that a creative team pledge to develop or mass produce and deliver to its backers. The practice had no clear legal foundation back when it started. It was only three years later, in 2012, the US law was amended to regulate the new practice of easier access to small capital financing, by adopting Jumpstart Our Business Startups (JOBS) Act 8

Similarly, ICO phenomenon sprung up from the burgeoning crypto community. The first ICO is widely accepted to be the Mastercoin blockchain project in 2013. It set itself apart as the first crypto crowdfunding case. The idea was to presell a blockchain coin/token as a service that the team pledged to develop in future. To purchase interest in the project, one was able to pay in bitcoin cryptocurrency. All of a sudden, a new practice was born.

A new use case for cryptocurrencies was forged and started to unfold rapidly. By 2017, not only many new cryptocurrencies emerged, but there were hundreds of ICO projects,

pre-selling their services, often, but not exclusively blockchain-based business applications. Indeed, raising funding in less restrictive way was the prime goal of the practice. Selling a token as interest in the project that had some utility or representation. Hence the new expression – utility token.

By definition, investing in a nebulous utility token (typically Ethereum EIP-20, also known as ERC-20 compliant) had very loose legal obligations, only those pledged by the issuing entity. The investment was not an equity purchase, nor it was a loan, rather – a voluntary contribution. The attraction was an almost immediate liquidity of the newly minted token. After the initial offering, a bubbling secondary market developed and offered easy entry and exit to all participants. Selling a token was selling a promise of a non-existent yet service, not dissimilar to the age of discoveries of long sea voyage ventures.

Similarly, the beginning of 17th century introduced the first permanent joint stock form, where the investment into shares did not need to be returned, but could be traded on a stock exchange. 9

The crypto investment practice unfolded into a wave of ICO projects, culminating in 2017. Thus many startups and mostly white paper ideas got funded. Most were real projects. Some were bad apples. But the most attractive aspect of the ICO were the returns on investments. According to one source, the ROI yielded in excess of 10x, even if you had invested in both the winners and losers alike over the 2017 year.  The whole industry was on a steep upwards pressure, with strong interest from the institutional sector. Such returns are unprecedented in the normal trading environment. Fortunes were made and lost.

The year 2017-2018 went down in history as the ICO hype unfolded. It culminated with several major events that occurred at the same time. One was Bitcoin blockchain forking and the subsequent nose dive of most cryptocurrency value. There were other notable events that coincided and contributed to the overall price fall.

From peak to trough the crypto asset market value was at times suddenly and later gradually reduced from over USD800B to little over USD100B. The so called crypto winter had set in. The bittersweet mass interest receded and an immediate flight away from all things crypto ensued. See chart below. 10

Security Tokens or STO vs Crowdfunding, ICOs & IEOs - Thought Leaders

IEO initial exchange offering

Similarly as with Slack and Spotify exchange listing, there are some ICOs that have listed directly on token exchanges. This way projects can leverage token trading venue client base to showcase their projects directly, without active promotion of the offering through other, often ineffective, marketing channels. This has prompted many token trading venues to start issuing utility token IEOs on behalf of token issuing start-ups.

For the contributors, exchange listing adds trustworthiness, security and vetting, knowing that a reputable exchange, such as Binance will have done certain due diligence before listing an unknown project. Indeed, for utility tokens IEO may prove to be a safe, if not cheap way to gain community trust. It is yet to be seen, however, if the initial listings continue to persist over a longer stretch of time, and what regulatory requirements may be imposed as to listing requirements. This also is a piece of history in the making.

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