Seite - 218 - in Digital Entrepreneurship - Impact on Business and Society

Once launched, the duration of the sale depends on howattractive the project is to investors and how effective the pre-sale communication is. Gnosis’ ICO, for example, concluded in 10minutes4; others may last for weeks or months. Many do not reach theminimum threshold at all. If the token offering is successful, the next step is for the promoters to deliver on their promises. This includes delivering tokens to thebuyers andgetting the tokens listedononeormoreexchanges.Oneof the advantages of token offerings compared to traditional VC investments or crowdfunding campaigns is that tokens can be traded in the secondary market (Benedetti and Kostovetsky 2018). Tokens’ price fluctuates based on progress in product development and project’s future prospects (Benedetti and Kostovetsky 2018). Despite all the hype around token offerings and the announcements of multi-million sales frequently reported in the media, the failure rate of token offerings is quite high.According to a recent report publishedbySatisGroupLLC, only15percent of the ICOs launched so farmanaged toget to the listing stage, and approximately, 50percent of themaredeemed tobe successful (SatisGroup2018). 3.2.2 Security TokenOfferings Althoughvery attractive fromafinancial standpoint, tokenofferings face twomain challenges. Firstly, ICOs suffer from legitimacy issues arising from 78% of past ICO initiatives being perceived or designated as scams (Satis Group 2018).5 Unsurprisingly, many investors still look at token offerings with suspicion. This also relates to the second challenge—ambiguous regulation. Asmentioned previ- ously, ICOswere, and still are, completelyunregulated inmanycountries.As such, investor protection is very limited at best or non-existent atworst. Some regulators have recentlyprovidedclearer frameworksbymakingasset/debt tokenscomparable tomore standard securities like debt or equities. This has enabled the development of more legitimate, transparent, and regulated token offerings (also known as security token offerings—STOs).What distinguishes STOs from ICOs is that STO tokenspasswhat is called “TheHoweyTest”—there is (i) an investmentofmoney, (ii)profits areexpected, (iii)money investment is acommonenterprise, and (iv)any profits comefromtheeffortsof a thirdparty (Henning2018).Assuch,unlike ICOs, STOs are defined as securities and therefore face the same regulation as equity shares while retaining the advantages of cryptocurrencies over traditional private markets in terms of liquidity, price discovery, andmarket makers. STOs are par- ticularlyattractive forprofit-drivenestablished investorswhoare looking toacquire a stake in these innovative ventures. From a promoter perspective, the process of launching and conducting an STO is similar to the one for ICOs presented previ- ously with two key differences mostly related to compliance (Lee et al. 2019). Firstly, token issuers need to paymore attention to compliancewith local security law requirements and to fullyunderstand the legal implicationsof theSTOforboth the issuing company and investors. Secondly, token issuersmust provide potential 4https://cointelegraph.com/news/fastest-ever-ico-ethereum-based-gnosis-creates-300-mln-in- minutes-raising-12-mln. 5https://medium.com/@sherwin.dowlat/ico-quality-development-trading-e4fef28df04f. 224 T. Lynn and P. Rosati