The world of digital cryptocurrencies has given start-ups new opportunities, such as the Initial Coin Offering (ICO). A number of startup companies rightly see it as a relatively easy way to finance a business. The conditions to be observed are significantly lower than with other financing options. However, some experts see precisely this as a problem because investor protection in such models is low, and various countries are therefore currently considering regulating ICOs. As countries decide how to proceed with ICOs, STOs, Security Token Offerings, offer another alternative. They are a similar concept that are already highly regulated, and can offer more security than ICOs to investors.
What is an ICO?
ICO stands for Initial Coin Offering, which in turn is derived from the generally accepted term for IPO – Initial Public Offering. While real company shares are traded on the stock exchange in such an initial public offering, ICOs are about trading tokens. Therefore many of these ICOs are now also referred to as token sales. A token, in turn, is a kind of virtual coupon that serves as the project currency. In principle, it is the investment in a cryptocurrency that is not yet available in the actual sense at the time of trading. The crux of the story: In contrast to IPOs that are heavily monitored, ICOs and token sales are hardly regulated. What exactly a trade involves, what investors get for their money, all this is kept to a minimum. Legal safeguards are also excluded from the outset in many cases when it comes to ICOs or token sales. Will the investment eventually lead to anything? Who knows that? In contrast to previous tokens from ICOs, security tokens are legally regulated and could therefore be traded on cryptocurrency exchanges – but retain many of the advantages of utility tokens.
A brief summary: Investors invest in a company and receive tokens in return. When the value of the financed start-up increases, the value of the tokens rises, so that the investors profit from it. The tokens are thus virtually a company-bound cryptocurrency. However, such a token is often associated with additional rights. For example, the US start-up company storj.io issued the so-called Storjcoins. With these, the buyer additionally acquired the right to use the storage space provided by storj.io. However, there are usually no other rights such as voting rights comparable to those of a shareholder. These types of tokens that give you additional functionality are also called utility tokens..
The ICO market struggled in 2018. However, this could soon change due to the latest regulatory developments. The cryptocurrency industry is responding and increasingly shifting towards the STO, which increases security for investors. Unlike utility tokens, security tokens give investors rights that go beyond the use of services and the like. They resemble a classic stock much more than, for example, the utility token, and the start-up may have to go through similar processes for this financing as for a classic IPO.
Important for investors: The security token is supported by external, tradable assets. One of the main applications is that they allow companies to issue tokens that are comparable to the company’s shares and these tokens are subject to securities regulations. This point is particularly important for the SEC and other regulators. An utility token, on the other hand, offers the buyer future access to a company’s product or service. In principle, it is not intended as an investment. The biggest difference between utility and security tokens is that the owner of the security token holds some rights on assets of the company, for example on equity (equity tokens), on machines or on financial assets (asset backed security tokens). The utility token owner, however, usually holds no specific rights or interest in the platform or the company’s assets.
According to estimates for 2020, the security token offering is expected to have a market capitalization of 10 trillion US dollars.
healthbank: Governance for the people, by the people
The Swiss health database platform healthbank is revolutionizing the way personal health data is stored, used, exchanged and shared for fair rewards. healthbank operates the world’s most advanced health data platform as a Swiss cooperative that allows users to have full control and access to health data. This means that the user can decide for himself whether this health data can then be shared with doctors, hospitals and research institutions by means of authorization. And it also means that the user and owner of healthbank also decides about the company itself.
Soon, healthbank’s goal is to offer the possibility to use personal health data anytime and anywhere, “not only at home, but also on vacation or when you’re away on business,” explains Karsten Stampa,COO/CFO of healthbank . The data would be urgently needed, especially in remote locations in the event of illness, and would help to understand people’s medical history quickly and easily in the event of a medical emergency, improving the quality of care, no matter where in the world it takes place.
STO from healthbank
In order to finance the further growth of the company, healthbank’s Board of Directors decided to carry out a Security Token Offering. A security token, in this case, is represented by the company’s equity, so-called share certificates, which give an investor more security – like a share in a company. This point is particularly important for regulatory authorities, which is why healthbank sought contact with the relevant authorities at an early stage and had its compliance checked. The healthbank documents are therefore – in contrast to the ICO and STO environment – very close to the level of a financial market prospectus in terms of quality and meaningfulness.
These “tokenised” share certificates of the healthbank cooperative will in future be listed and tradable at different security token exchanges. “We are currently negotiating on which of these already existing or emerging trading venues in Switzerland and abroad we will be listed,” Stampa continues.
By investing in a healthbank security token, every individual can benefit both from dividend rights in the future as well as the growing value of the healthbank ecosystem. An investment in healthbank is an investment in a market-proven company and can thus contribute to the success of a neutral and independent health data ecosystem. In addition, an investor benefits from the long-term success of healthbank. “The healthbank STO strategy differs from most of the existing ICO processes worldwide, in that it pursues a long-term perspective linked to a solid asset and this combined with a sustainable business model,” says Stampa.
Author: Roger Huber