Taiwan’s leading securities firm, Cathay Securities, has recently announced that it has obtained approval from the Financial Supervisory Commission to launch Security Token Offering (STO) services. This makes Cathay Securities the first securities firm in Taiwan to be granted permission to operate in the STO field. This news has generated much excitement among users in Taiwan’s cryptocurrency community and has opened up new opportunities for the development of cryptocurrencies in the country.
STO, or Security Token Offering, is a financing method related to blockchain technology. It involves the issuance of securities through blockchain technology, transforming traditional assets such as stocks, bonds, and real estate into digital tokens that can be traded and settled using blockchain.
Financing is crucial for the development of enterprises, and with the rise of blockchain technology, new fundraising methods have emerged, such as Initial Coin Offerings (ICO) and Initial Token Offerings (ITO). However, ICOs have often been associated with fraud due to the lack of regulation. In 2017, approximately 78% of ICO projects were classified as scams, and many successful ICOs did not follow their original plans. As a result, many countries began to explicitly ban ICOs, leading to a decline in global ICO projects in 2018. In comparison, STOs offer more legal compliance and investor protection, making them increasingly favored by startups and investors.
Advantages and Challenges of STOs
Advantage 1: Lower Fundraising Costs
Compared to traditional fundraising methods, STOs have lower fundraising costs. Through the use of smart contracts on the blockchain, there is no need for fundraising procedures, intermediaries, or paperwork, making the entire fundraising process faster and cheaper, effectively reducing the financing costs for enterprises.
Advantage 2: Higher Security
Compared to ICOs, STOs must comply with securities laws, and the use of blockchain technology in STO transactions ensures transparency and accountability. Additionally, STOs are backed by real-world assets, making it easier for investors to evaluate their value. This provides both investors and enterprises with higher security.
Challenge 1: Higher Investment Threshold
Since STOs are still related to blockchain technology, it is preferable for investors and enterprises to have some knowledge of blockchain to reduce investment risks.
Challenge 2: Regulatory Compliance
Different countries have different regulatory frameworks for STOs, and it is still not a widely adopted fundraising method. Therefore, establishing regulatory procedures, asset ownership tracking, and Know Your Customer (KYC) procedures must comply with securities laws. Regulatory authorities also face various issues that need to be addressed and discussed.
Taiwan Becomes the First Country to Pass STO Legislation! Only Two Types of Tokens Can be Issued
Taiwan is the first country in the world to pass dedicated legislation for STOs. The Financial Supervisory Commission began discussing regulations related to STOs in 2018 and officially released the STO management regulations on January 20, 2020. Since then, enterprises have been able to raise funds from investors by issuing virtual assets. Currently, STO investors in Taiwan are limited to “professional investors” and are subject to several restrictions:
Virtual currency subscriptions and transactions must be conducted under real names, and investors interested in subscribing must first register on the trading platform.
Investors must sign account opening agreements and risk disclosure statements with securities firms and designate their bank accounts for transactions.
Professional investors must be natural persons, and their subscription limit must not exceed NT$300,000.
Currently, Taiwan only allows the issuance of “profit-sharing” and “bond” tokens that do not confer shareholder rights. Investors can hold these tokens for the long term to earn interest or sell them to make a profit, but there is still a risk of losing their investment.
STOs have already seen many successful cases worldwide, and STO trading platforms under regulation must have robust information security management mechanisms. However, investment always carries risks, and users must exercise caution when investing.
References: cointelegraph, techopedia
Proofread by: Gao Jingyuan