Darren Marble, the founder of CrowdfundX, has made waves in fintech by making it possible for companies in the emerging space to achieve capitalization through crowdfunding. Now, he’s speaking out about the new US security token market.
Marble begins by making a distinction between Security Token Offerings (STOs) and Initial Coin Offerings (ICOs). While the explosion of ICOs in 2017 led to a massive amount of “pump and dump” schemes and subsequent Securities and Exchange Commission regulation, STOs are already regulated as security offerings in the US.
New hub of STOs
Marble sees Silicon Valley as the emerging hub of activity for crypto venture capitalism. Presumably they will use Reg D and Reg S domestically and internationally as their SEC exemption for offering security tokens.
As far as Reg A+ investors, Marble believes that most of these companies will fail. According to the JOBS Act, Regulation A+ allows corporations to raise up to $50 million from the general public. From Marble’s point of view, any company operating on a Reg A+ exemption is not making an appeal to sophisticated money, preferring to go to the general public for funding rather than accredited investors.
Death of the IPO and rise of the STO
The issues that he sees around Reg A+ IPOs is the fact that they are trading down. Even though previous IPOs successfully raised a great deal of capital, their current trading pattern means that often, investors are left on the hook.
At the moment, Marble sees an enormous gap in the market for securities underwriters in the STO space, though he believes that they are on their way. This is because, while the hype around cryptocurrencies has subsided, the technology remains important.
Pumping the Brakes for now
He also believes that the majority stakeholders in the crypto space, namely Microsoft and IBM which own over 50 percent of the market, are delaying projects, preferring to wait on regulation and standards. At the moment, none of the major corporations involved in blockchain technology has created compatible software, though it is on the horizon. The other factor slowing the growth of the industry is the fact that blockchain technology can not handle a large volume of transactions at the moment. This is the Achilles’ heel of the entire industry, and investors are eagerly awaiting a solution.
Regardless, Marble remains bullish on STOs given that they have already been cleared by federal laws. He believes that the strength of STOs lies in the fact that any company can make the offering, including startups or traditional enterprises. STOs increase liquidity, and security tokens will be able to trade on open exchanges. Marble goes on to speculate that NYSE, OTC, and NASDAQ will go on to launch their own security tokens or risk obsolescence.
How to make an STO
Marble states that the foundation of a good STO begins with a lawyer who knows the intricacies of traditional capital markets and crypto markets. Ideally, the securities attorney would use the Reg D 506(c) securities exemption, given the fact that there is no cap on funds and it only allows accredited investors. Not to mention, it is quicker and easier than Reg A+. This means that companies can be quicker to market and less exposed to risk.