By now, even non-bitcoin enthusiasts may have heard of a fundraising process called initial coin offerings. The Securities and Exchange Commission has cracked down with accusations of fraud and scores of subpoenas this year.
But the CEO of Overstock, which is under SEC investigation, said there’s a safer way to raise money through crypto: security token offerings.
“It’s the new term,” Overstock CEO Patrick Byrne said. “The industry is distinguishing very clearly now between ICOs and STOs.”
This week, Overstock announced a $2.5 million investment in three-wheel car start-up Elio Motors. The automaker also announced the launch of “ElioCoin” to fund production and made clear in an announcement it was a “security token offering.” The process is being led by Wall Street trading firm JonesTrading Institutional Services.
“It is a very clever offering, and could represent a whole new model for American entrepreneurship,” Byrne said.
Roughly $9.8 billion has been raised through ICOs since 2016, according to financial research firm Autonomous Next. That money flow has caught the attention of the SEC, which has warned of pump-and-dump schemes in ICOs, shut some down, and recently charged one backed by Floyd Mayweather and DJ Khalid with fraud.
In an ICO, coins or tokens are put up for sale as a form of crowdfunding. Instead of voting rights or dividends that come with shares of a company, “utility tokens” promise access to a network, platform or service. But they’re often backed by an abstract idea, or nothing at all.
The process has facilitated the rise of cryptocurrencies like Dogecoin, a Shiba Inu dog meme-turned-cryptocurrency that has a passionate following on sites such as Reddit. Whoppercoin, Pandacoin, Trumpcoin and PutinCoin have also raised money through initial coin offerings.
Similarly, in a security token offering, you can buy coins or tokens. But unlike in many ICOs, these tokens must be backed by something tangible, such as assets, profits or revenue of the company. They act almost exactly like a share of a company but are “programmable,” to do things like conduct proxy voting, because they’re built on blockchain technology, according to one expert…