It’s the start of April and, with the prices of cryptocurrencies like Bitcoin surging up 10-20%, it looks like we might just be coming out of the ‘Crypto winter.’ With a return to enthusiasm in the blockchain space, everyone wants to know one simple thing — What’s next?
If you’ve been following blockchain for some time already, you would know that 2017-18 saw the rapid rise of something called ‘Initial Coin Offerings.’ In an ICO, companies can sell tokenized pre-orders (utilities) of their product in exchange for the funds needed to launch. To illustrate, many successful exchanges, such as Binance, sold tokens that can be redeemed for a discount on trading fees.
It was realized rather early on that other things than just utilities could be tokenized. Many companies, feeling limited by utility token crowdfunding, began selling tokens that represented the rights to things like shares of revenues (dividend tokens) or to having a voice in the direction of the company (governance tokens). These tokens came to be referred to as security tokens.
Today, security tokens seem to be all anyone can talk about, and many expect them to be the next big development in crypto. Until now, however, one thing has been holding these tokens and their issuance in STOs back: Regulation.
The issuance of securities is almost universally regulated. For this reason, potential STO projects must be very careful about the jurisdiction from which they issue their tokens. They need an adequate regulatory framework – they require that their tokens be recognized as securities and that guidelines be in place (such as AML policy) for their issuance.
Unfortunately, even today, few jurisdictions are ready to serve as a home base for STO projects. Entire continents, such as Asia, were left (until recently) without a single viable locale for security token issuance.
On Tuesday, January 15th, the Securities Commission (SC), with backing from the Ministry of Finance, became empowered to regulate digital asset offerings and exchanges. The Commission seems enthusiastic about the prospect for security tokens, announcing that they would work with the country’s central bank to create a full legal framework for digital assets by the end of the first quarter of 2019.
Malaysia’s choice to regulate digital assets is a massive breakthrough for Asia. While Singapore used to be a promising jurisdiction in the region, it has shown itself to be hesitant in practice. Now, thanks to this change in Malaysian policy, potential security token issuers and investors from Asia can hope to enjoy the benefits of blockchain closer to home. What’s more, Malaysia’s move may be a catalyst for STO regulation in the region, with Thailand and the Philippines looking to follow its example with their own regulatory frameworks.
Security token offerings are still in their early days (popular listing sites show the number of STOs to still be in the mid-teens) so there is still plenty of time to find out what role they will play in corporate finance.
Some think STOs could be set to replace IPOs, while others are more hesitant, seeing them as merely a new (more liquid) form of private financing. If one thing is certain, it’s that Malaysia will be a great place to look to see what the future holds for this exciting new technology and financial structure.
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