Financial regulators have taken unique approaches to the regulation of Security Tokens and STOs (Security Token Offerings), with many yet to issue formal guidelines for classifying and issuing Security Tokens. Many countries have deemed STOs illegal, while many require that STOs adhere to existing securities law. Countries that have not issued any guidance or declarations remain a regulatory grey zone and issuers in these jurisdictions may face retrospective legislation. Though some countries offer frameworks and relatively simple processes for conducting STOs, the diverse international regulations have made conducting an STO across multiple jurisdictions costly and risky for companies raising funds. EMURGO, the official commercial arm of Cardano, is on top of the complexities of STOs and ready to offer advisory services pertaining to this potentially lucrative area.
You may also read about our recent articles: A Sneak Peek at User Issued Assets & Security Tokens in Cardano , Blockchain Primer: What is a Utility Token? How is it different from a Security Token?
A Complex Game of Compliance on the International Stage
Equity crowdfunding compliance is demanding, private placements exclude retail investors, and limited offering exemptions restrict STO marketing and cap the raise. This has led many projects to conduct STOs through a combination of filings and exemptions across many jurisdictions, permitting as many investors as possible to take part in the offering while limiting liability by only offering the deal in jurisdictions with clearly defined rules for Security Tokens.
Almost all STOs raising significant funds have been restricted exclusively to accredited/high net worth/eligible investors. A few have conducted equity crowdfunding rounds to allow for retail investors to take part, but in most cases (and especially when raising a significant amount of funds) it is simpler and cheaper to restrict the sale according to exemptions in various jurisdictions. For example, almost all high-value STOs have opened investing to US accredited investors through Reg D exemptions.
What About the Democratization of Venture Capital?