Mass Adoption of STO Part Three: Integrity

Part Two Recap

In Part Two of our STO mass adoption series, we discussed the need for standardization across the industry in order to drive down costs. Launching an STO at the moment is prohibitively expensive, especially for the early-stage companies that can benefit from it the most.

 

Here in Part Three, we seek to discuss the third major requirement for security token mass adoption: integrity.

Integrity: Tokens Behave as Expected

Any major event in which security tokens significantly malfunction can have a noticeable cooling effect for STO appetite. Whether a malfunction results from issues with the internal construction of the token, from external attacks, or a compliance breach, traditional companies and investors alike may shy away from STO if they perceive the risk of malfunction is non-trivial.

The Tolerance for Error Will be Very Low

ICOs existed in a zero to one world where projects that did not even have business fundamentals could raise millions of dollars. These projects were willing to brave the risk inherent to ICOs for lack of any alternative.

 

For STOs, things are different. Traditional equity financing is a well-established framework for raising funds that has withstood the test of time since the 1970s.

 

One of the greatest risks for STOs is the perception that it provides only marginal advantages in exchange for unforeseeable risks.

 

Companies that seek funds face business risk every day. For startups in particular, life is a race against the clock to find a sustainable business model before the cash runs out.

 

The last thing these companies need is a whole new vector of risk introduced by an untested fundraising regime where each unit of ownership (the token) responds autonomously to different conditions. For many founders, these very benefits of security tokens are also what could make them feel like they could losing control.

 

Ultimately what this means is that the batch of pioneers in the STO space must have positive experience both in their fundraising and in the subsequent token governance schemes.


As an industry, we should be aware that we will be judged by the success or failure of our very first projects. With such a low tolerance for error, high standards will be set. This is echoed by the security token industry, who have a low appetite to only work with high-quality projects that are unlikely damage their brand or credibility.

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