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Security Token Offerings Come Under the Fire from Chinese Authorities

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by Sofiko Abeslamidze · 3 min read
Security Token Offerings Come Under the Fire from Chinese Authorities
Photo: Pixabay

Once again China steps on the warpath with a crypto-related public offering, only today there are STOs that take a hit from Beijing financial authorities.

A drastic decline in the cryptocurrency market might be an evidence of faded trading enthusiasm still, it does not mean that startups have given up on a blockchain-based IPO alternative. Instead, being an affordable fundraising tool, Security Token Offering is gradually taking over the market share.

A Remedy for ICO Scams

So far investors, who are somehow involved in the crypto-industry, have been very well aware of Initial Coin Offering, aka ICO, the process of tokens distribution with an intention to collect sufficient amount of money for the further project development.

Once a project decides to hold an ICO, it usually faces a dilemma that resolves in a kind of tokens it chose to issue. Until today the most preferable type of ICO tokens was a utility token that does not imply any rights in the company’s decision-making process.

Utility tokens do not fall under regulatory oversight, therefore, the process of token distribution does not require particular legal settlement. However, owing to these exemptions ICOs have stained their reputation with numerous “pump-and-dump” schemes.  

That is exactly the reason why the financial watchdog of countries, where ICOs gained massive adoption, was ultimately forced to ban the fundraising activity.

For example, as previously reported by Coinspeaker, the People’s Bank of China has declared ICOs illegal, and asked all related fundraising activity to be halted immediately.

When it comes to security tokens, investors might sigh with relief — their money is safe. Unlike the above-mentioned utility tokens, security tokens enable holders to share profits while casting their votes to define the company policy.

Moreover, the process of tokens distribution is less attractive for ICO scammers, since STO (Security Token Offering) is subject to federal laws governing securities.

Nevertheless, Chinese financial authorities do not bother with finding the differences as they are up to get rid of STO as well.

Beijing Against STO

Several months have passed since the ICOs were outlawed in China and it seems like STOs are going to share the sentence as Beijing has issued a warning about malicious activities associated with Security Token Offerings.

At a wealth management forum held over the weekend, Huo Xuewen, chief of Beijing’s Municipal Bureau of Finance, said that the government would crack down on STOs until it had approved the process. It is worth mentioning that STOs would be seen as illegal financial activities in the interim.

In addition, he stated:

“The ICO model is getting left behind for a new concept called STO. I want to issue a warning to anyone considering running an STO in Beijing. Don’t do it in Beijing – it is illegal. You can only engage in such activities with the approval from the government.”

Well, while swaths of crypto-enthusiasts harbour an opportunity for savvy investments in STOs, China has been tightening its grips on any fundraising activities closely related to the crypto-market.

But in the meanwhile, the rest of the world is getting along with STOs quite well. Over the past several months, tons of blockchain companies – including some that already raised funds in ICOs – are planning to hold their own STOs.

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