Guide to Reverse Token Offerings2018-08-18T12:23:06+00:00

An Insight Into ICOs And Reverse ICOs

While ICOs (Initial Coin Offerings) are becoming a lot more popular in the recent years, they are facing regulatory challenges and were actually built for start ups and not already established companies. This means a solution for existing businesses was required and now there is indeed one in place – the Reverse ICO. This solution is fully compliant with all regulations and laws and this creates a new way for companies to issue securities, which are fully tradable. Reverse ICOs follow identical disclosures and regulations, however, instead of stock, they are issuing tokens to investors who are tech-savvy and ready to try something more innovative.

How Do Reverse ICOs Work?

A Reverse ICO follows the same audits, diligence, best practices, and SEC regulations as standard ICOs with the only difference that instead of issuing stock certificates, tokens are issued instead. Reverse ICOs are designed to meet the needs of successful existing companies, which have a solid revenue and are ready to launch a scaled version of themselves to the public.

They are particularly useful in the case of VC portfolio company exits. Tokens are listed on the secondary SEC certified exchanges to essentially create an alternative to the traditional stock market with a superior liquidity. Tokens cact as a preferred, common or other innovative classes of equity. Investors in Reverse ICOs are also in a class of their own with rapidly growing portfolios and a greater interest in innovation than in financial statements, which allows for reduced financial micromanagement and higher valuations.

An Insight Into Securitized Tokens

The key technological advancement of the blockchain has created a multitude of opportunities for entrepreneurs to enable a host of exciting projects to become a reality. Cryptocurrencies or tokens as they are better known, have three functions- allowing them to be used for payments (i.e. Payment Tokens), to provide digital access to services or applications (i.e. Utility Tokens), and finally, Security Tokens (or Asset Tokens), the third function of cryptocurrencies and a particularly interesting one, which intersects traditional financial products with this latest technology in the field of real estate and private and public equities.

The Advantages Of Security Tokens

Securitized Tokens remove the middle man from a number of investment transactions leading to several advantages that prove particularly appealing to investors and entrepreneurs. Some of these benefits include:

LOWER
FEES

The need for bankers and other middle men is removed and this, in turn, reduces the fees associated with transactions. Smart contracts will probably also soon remove any need for lawyers too, exponentially reducing the paperwork, costs, and complexity of managing securities for a much cheaper transaction overall.

SPEEDIER
EXECUTION

If there are large numbers of people involved in any deal it will take longer to execute. Securitized Tokens take out the middle men from the transaction and this accelerates the timeline in which issuers can offer the security successfully.

EXPOSURE TO THE
GLOBAL INVESTOR BASE

With traditional investment transactions, there is a lack of exposure to the global investor base. However, with Security Tokens, the asset owner can market their deal to anybody who has a working internet connection and this exposure to the free market will lead to significant changes in the valuation of assets.

A WIDE
INVESTOR BASE

If an asset owner can present their deals to anybody with a functioning internet connection, the number of potential investors is likely to be huge. The healthy competition is excellent for the financial market.

AUTOMATED
SERVICE FUNCTIONS

Security Tokens allow issuers to use a smart contract to make the service provider function in an automated manner via software. This means that there is considerably less need for lawyers, and, when they are needed, their role will primarily be advisory in capacity.

LESS MANUPULATION BY
FINANCIAL INSTITUTIONS

When financial institutions can be removed from the processing of investment transactions, the chances of manipulation and corruption are reduced.

Compliance And Security Tokens

One of the major advantages of Securitized Tokens is that when done properly, they do not skirt any regulations or laws. As Security Tokens are subject to the Federal securities regulations they remain fully compliant, ensuring a complete peace of mind.

Are There Any Disadvantages To Securitized Tokens?

When financial institutions are removed from the process of investment transactions, this is generally viewed as being an advantage, however it also means that the responsibilities normally shouldered by the middle man in the transaction then become the responsibilities of the seller or the buyer. Traditionally, financial institutions would underwrite the deal, prepare marketing materials, solicit investor interest, and ensure a high level of regulation and security compliance to drive an ultimately successful transaction execution.

Securitized Token Offerings require the issuers to underwrite the deal themselves through third party audits as well as to solicit the interest of the investors themselves, prepare their own marketing materials, and ensure that their regulatory and security compliance is fully in place. As most traditional investors still hold to the belief that many potential issues cannot execute those functions themselves without a traditional financial institution to assist, this could be problematic.

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