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The Pros and Cons of Security Tokens

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Pros and Cons of Security Tokens

Security tokens continue to reshape the way we conduct business on a global scale. These unique tokens provide companies and investors with a regulated way to enter the crypto space. When a company launches a security token it’s called an STO, or security token offering. Understanding the pros and cons of security tokens makes you a better-informed investor.

Regulatory integration is a huge step forward for the cryptospace. It allows traditional business models to convert over to more efficient blockchain-based structures. While this approach is perfect for many types of business models, it doesn’t always make sense due to some of the drawbacks security tokens contain. Let’s take a moment to examine the pros and cons of security tokens to get a better understanding of these amazing tokens true capabilities and limitations.

Pros of Security Tokens

Security tokens allow traditional business transactions to be tokenized while still meeting the regulatory requirements set in place for the industry in question. Tokenization is the process of transferring an item to the blockchain. For example, a security token can represent ownership rights in a property.

Transferring property ownership rights requires that all parties involved in the transaction meet certain related regulatory requirements. Security tokens have the ability to integrate these regulations directly into their core protocol. In September of this year, the security token launch platform Polymath partnered with BlockEstate to begin the tokenization of the real estate market.

Polymath via Homepage

Polymath via Homepage

Reducing Investment Thresholds

Security tokens are a powerful fundraising tool which allows companies to lower their minimum investment requirements to nearly non-existent. In the past, companies were forced to require that participating investors provide a certain level of funding to participate in their campaigns.

This situation led to the dismissal of interested parties that were unable to meet the minimum requirements. In other words, companies were unable to accept capital from millions of investors because the cost of processing the investor’s information and was too expensive.

Blockchain technology eliminates this problem by automating the majority of the process. Security tokens take the concept further and remove the regulatory workload through the use of smart contracts.

Enhancing Asset Liquidity

Security tokens provide investors with more liquidity. In its current state, there are thousands of investors locked into long-term investments in which they must wait until the maturity date to access their funds. Since many of these are long-term investments, it can leave these individuals without access to their money for years.

Security tokens can eliminate these concerns. Once a fund is tokenized, an investor can buy and sell fund shares as they see fit. This produces a more effective flow of assets and enables the development of secondary trading platforms to handle new market opportunities.

Issuance Costs

Hosting an STO is far cheaper than hosting an IPO. Companies can see upwards of 7% of their raised capital go towards issuance and transaction cost in a traditional IPO. The reasons for these high costs are simple. IPOs require the involvement of numerous third-party verification systems. Each adds a fee to the total cost of the transaction.

STOs reduce the cost of crowdfunding significantly when compared to IPOs. Blockchain technology allows companies to automate the most costly parts of their transactions. Additionally, smart contracts can automatically monitor, track, and distribute investment funds without the need of any third party intervention.

Reduced Fees

Security tokens allow companies to host international fundraising campaigns. Sending any form of fiat currency internationally can be a huge headache. Depending on the amount of funds being invested, you could see over a week in delays. Additionally, there is a risk of losing funds during the monetary conversion.

Currency Conversion Rates via Oanda

Currency Conversion Rates via Oanda

Security token investors eliminate these international costs. These tokens can be sent across the globe for no additional fees. Also, you won’t have to wait days for your blockchain transaction to complete. In most instances, the transaction takes minutes.  Best of all, there is no need to convert your funds.

Improved Market Efficiency

The transparent nature of blockchain technology improves the current market systems significantly. Security tokens provide instant monitoring capabilities. Users can easily track their tokens and investments via a blockchain monitoring application. Investors gain untethered access to their investment’s fundraising progress.

Cons of Security Tokens

No token is without its imperfections, and security tokens are no exception to this rule.  These helpful token are bridging the gap between conventional investments and the blockchain space. That being said, they are not without their limitations.

Investor Accreditation Limitations

One of the biggest drawbacks to security tokens is the inability of non-accredited investors to own them. In the US, this means that more STOs will require you to be an accredited investor as part of their SEC compliance. Unfortunately, you need to earn at least $200,000 per year, or, have at least 1 million dollars in the bank, if you want to be an accredited investor.

More Expensive than Utility Tokens

Unlike ICOs, STOs need to include a host of other organizations in their crowdfunding campaign. Underwriting companies are a perfect example of an added cost that STO participants must foot the bill for. Regulation isn’t cheap and it’s much more expensive to host an STO when compared to an ICO.

Secondary Market Trading Restrictions

Another drawback encountered by security token investors is secondary trading market restrictions. Security tokens can only be transferred via licensed platforms. The platforms must possess a security trading’s license in the country they operate in. Additionally, security tokens feature a time-lock mechanism. You can only trade these tokens between qualified investors for a predetermined amount of time after the STO.

The Pros and Cons of Security Tokens

Now that you have a better understanding of the pros and cons of security tokens, you can make an informed decision on which is the right investment for you. Remember, there isn’t a one-size-fits-all when discussing tokens and what may be the perfect fit for one business, could be a total disaster for the next.

Security tokens are the chain that links conventional markets to the cryptospace. You should expect to see explosive growth in this sector over the coming months as the advantages of blockchain technology continue to become better understood globally.

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David Hamilton is a full-time journalist and a long-time bitcoinist. He specializes in writing articles on the blockchain. His articles have been published in multiple bitcoin publications including Bitcoinlightning.com

Digital Securities

META 1 Coin Threatens Securities.io with Litigation for Reporting on ICO Fraud

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META 1 Coin Threatens Securities.io with Litigation for Reporting on ICO Fraud

On August 4th, 2020 Securities.io was threatened with legal action by Robert Paul Dunlap, the legal advocate for META 1 Coin, the creator, owner, controller, and also one of the defendants in the Complaint filed by the SEC. The threat followed the publication of an article titled “SEC Files Charges Against ex-Senator David Schmidt” which was published on March 25, 2020.

Who is META 1 Coin?

META 1 Coin raised funds in April 2018 by performing an Initial Coin Offering (ICO).  As described by an SEC filing META 1 COIN raised at least 4.48 million from over 150 investors in the United States and internationally.

In order to raise funds misleading claims were made. These were some of the claims:

  • They owned $1 billion in art insured against loss by a surety bond, and later, that META 1 owned $2 billion in gold assets;
  • KPMG, one of the largest independent financial audit firms in the world, was auditing Meta1’s gold assets;
  • Meta1 formed its own investment bank and developed its own digital currency exchange;
  • the Coin is safe and risk-free and will never lose value;
  • Each Coin, sold for either $22.22 or $44.44 would in two years be worth $50,000—up to a 224,923% return—as a “very conservative value.”

Unfortunately many investors did not perform adequate due diligence as the SEC claims the tokens were backed by nothing.

Litigation Threat:

The letter received by META 1 accused the SEC and Securities.io of being fraudulent, below are some of the accusations/threats and our responses.

If SECURITIES.io was to do any due diligence at all you would know it was a fictitious story fabricated by the SEC in order to make all digital assets look fraudulent.

Our response: Securities.io has the responsibility of reporting on both legitimate projects, and fraudulent projects. Every time an investor is taken advantage with false claims whether it is the form of an ICO, or other fraudulent behavior, it destroys the credibility of the industry. We also believe in the credibility and the mission of the SEC which is stated as “The mission of the U.S. Securities and Exchange Commission is to protect investors, maintain fair, orderly, and efficient markets, and facilitate capital formation”.

So time will tell if SECURITIES.io is really about digital assets or just another STATE run publisher of malicious defamation.

Our response: Perhaps this is pushing a conspiracy theory or an agenda of being owned and controlled by a deep state. Either way, Securities.io is NOT owned in part or in whole by any government entity in any jurisdiction.

Today is August 4th 3:25 EST 2020 and a claim will be made in 24 hours and It will decimate SECURITIES.io if the named article is not immediately removed.

Our Response: This has been noted. We have fact checked the original article and it remains accurate.

Additionally, I am ordering a follow-up update of the facts regarding the validity or META 1 Coin

Our Response: We have updated the article to reflect new information regarding the fraud behind the initial ICO raise. We were unaware that information was missing, thank you for notifying us of this. Whenever we are notified of errors in reporting we take corrective action.

Summary:

Unfortunately, the digital assets industry continues to result in many operators that are taking advantage of the naivety of investors. It is our responsibility to report on this unethical behavior and to report on any actions taken against these rogue operators by the SEC or other government entities. We will continue with our mission.

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Digital Securities

Polymath Launches ‘Token Studio 2.0’ on ‘Polymesh’ Digital Securities Blockchain

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token studio

Token issuer Polymath has had a busy few weeks.  Just over one month ago, the digital securities pioneer announced the launch of Aldebaran – the first iteration and testnet of the Polymesh  blockchain.  Now Polymath has announced version 2.0 of its ‘Token Studio’, a suite of token services, which now runs on the Polymesh blockchain.

Token Studio

When Polymath uses the term ‘Token Studio’, it is referring to a suite of services, which allows clients to create, issue, and manage digital securities – a vital part of Polymath’s goal to simplify token creation.

The first iteration of Polymath’s Token Studio was based on the Ethereum blockchain.  With the development and pivot towards the use of Polymesh, a new Token Studio was needed – one that was designed for this purpose-built blockchain.

With the launch of this version of Token Studio, Polymath has now opened up the ability for clients to trial its capabilities on the recently released Polymesh testnet ‘Aldebaran’.

Polymath notes that by utilizing Token Studio on the Polymesh blockchain, clients will benefit in various ways.

Design
  • Clients have the ability to create digital securities tailored to their needs – this includes asset type, ticker symbols, asset identifiers, etc.
Identity
  • Built-in services including KYC checks.  This ensures that only appropriate investors can gain access to digital securities created through the use of Polymesh.
Compliance
  • Arguably, the biggest draw towards a purpose-built blockchain is the ability to integrate stringent compliance measures – a necessity when dealing with digital securities. This means that, regardless of jurisdiction, token issues can be assured that their issuances remain in full compliance with securities regulations.

With Token Studio simplifying the creation and issuance process, there should be nothing holding back companies from creating compliant digital securities on the Polymesh blockchain.  The timing of the Polymesh-based Token Studio is ideal; anticipated security token exchange Archax previously announced support for Polymesh tokens when it launches.

Aldebaran

In the constellation, Taurus, the brightest star is Aldebaran – commonly referred to as the ‘bulls-eye’.  This is an apt name for a company that utilizes a bull as its mascot and represents a bright spot within the digital securities sector.

Aldebaran represents the first testnet of the purpose-built Polymesh blockchain.  Polymath has spoken on the rationality behind creating a project such as this, stating,

“The most important learning has been that security tokens cannot gain adoption and acceptance from regulators and institutions with a general-purpose blockchain; security tokens need something more specialized that addresses the foremost concerns of governance, confidentiality, identity, and compliance.”

For holders of Polymath’s ‘POLY’ tokens, a bridging service has been created to convert these assets to ‘POLYX’ – A token with similar functionality, but based on the Polymesh blockchain, rather than Ethereum.  Along with this bridging service, Polymath will soon be launching a Polymesh wallet – providing a way to safely store these assets, while supporting staking capabilities.

The next version of the Polymesh testnet is expected to launch in Q4 of 2020, with the full mainnet launch in Q1 of 2021.

Polymath

Founded in 2017, Polymath is a service provider for the digital securities sector, with operations based in Toronto, Canada.  To date, Polymath has helped facilitate the creation of hundreds of digital securities.

 

In Other News

Polymath is not the only company to note the need for purpose-built digital security solutions.  We have recently taken a closer look at another example of this, as NEM gears up for the launch of its offering, ‘Symbol’.

Make sure to peruse our recent interview with NEM Ventures Managing Director, Dave Hodgson.  Here, we learn more about Symbol, and why such a solution is needed.

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Digital Securities

‘Mrs. Antonia’ Scam Preys on 1M Clients Affected by ePayments FCA Imposed Lockdown

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Mrs. Antonia

Twitter hacks, news outlet impersonations, Ponzi schemes, and now ‘Mrs. Antonia’ – the world is rife with scams, perpetrated by criminals looking to prey on the naïve.

Although less publicised, the recent ‘Mrs. Antonia’ scam is being targeted towards more than 1 million clients of ePayments that lost access to their financial holdings, months ago.

Mrs. Antonia

In this new scam, it appears that bad actors are looking to prey on those that have already endured trying times.

Users of payment processing platform, ePayments, which have had their funds frozen, are being contacted by a person or group posing as ‘Mrs. Antonia’.  In these instances, ‘Mrs. Antonia’ promises the affected ePayments clients that they can help ‘unfreeze’ their funds – this, however, is a lie.  The person or people behind the scam go as far as creating fake testimonials from people claiming that ‘Mrs. Antonia’ did indeed help them.

Unfortunately, Mrs. Antonia does not exist, and she cannot help.  The actions of these criminals have prompted ePayments to release a statement, informing their clients of this scam.

“PLEASE be aware – this is a scam. We are unable to release any customer funds at present and so any claims by any third parties of this nature are not true.”

Extended Lockdown

For months now, over 1 million clients of payment processor, ePayments, have had access to their funds revoked, due to a Financial Conduct Authority (FCA) imposed lockdown.  To this day, the reasoning behind these measures is not fully known, aside from lapses found in ePayments anti-money laundering (AML) procedures.

With this lockdown extended for months now, it is understandable that those affected are growing impatient.  As a result, many account holders might just be swayed by the promises made by these criminals.

Upon addressing the situation, ePayments has attempted to ease the fears of its clients by stating,

“We recognise that time has elapsed since we suspended business and we are truly sorry that we have put you, our customers, in this position. We wish to assure you once again that your funds are still safeguarded as normal.”

Scams Aplenty

Sadly, we must all be vigilant, and on guard for scams.  They are increasingly prevalent, as we increase our reliance on technology, with the ePayments situation simply being one example.

The world of blockchain is no stranger to scams, and has resulted in multiple which were staggering in size.

Onecoin
  • $4 billion stolen through Ponzi scheme
 Plustoken
  • $6 billion defrauded from investors
  • Recently arrested 27 individuals connected with the scam

These two scams alone affected millions of investors, defrauding them of roughly $10 billion.  While actions have been taken in an attempt to hold the offenders accountable for their actions, the sad truth is that the vast majority of those affected will never see their funds again.

ePayments

Founded in 2010, ePayments is a global payments processor based out of the United Kingdom.  Through its services, ePayments has amassed over 1million clients, representing 100 countries.

CEO, Mikhail Rymanov, currently oversees company operations.

*Upon contacting ePayments for commentary, no response was received*

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Trading Risk Disclaimer: There is a very high degree of risk involved in trading securities. Trading in any type of financial product including forex, CFDs, stocks, and cryptocurrencies involves a high level of risk.

This risk is  higher with Cryptocurrencies due to markets being decentralized and non-regulated. You should be aware that you may lose a significant portion of your portfolio.

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