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Fintech and Taiwanese experience in attracting investments in security token offering

03/05/2019
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  • Taiwanese_STO
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Contents

  1. Economic fundamentals of startups and fintech
  2. Taiwan experiment with security token offering
  3. Security token offering as an analogue of the ICO

According to information from the Taiwan Financial Supervision Commission (FSC), regulatory methods for issuing security token offering (STO) is being studied here. Starting from June 2019, start-up companies are expected to be able to attract customer funds in this way.

Economic fundamentals of startups and fintech

The total amount of investment in fintech companies in 2018 exceeded $ 55 billion. Moreover, Chinese investors have invested more than 50% of this amount. The total size of placements was twice as large as in 2017, while the number of rounds increased by only 19%. This means that buyers began to show more interest in the big business.

Fintech companies operate in the provision of innovative services. They compete with banks and other economic organizations, offering new solutions in the financial field.

Ant Financial Services associated with the Alibaba Group and Du Xiaoman Financial, a subsidiary of Baidu, China's largest search engine, received the largest funding in 2018. In total, they raised $ 18.4 billion. That is, for the remaining 346 projects, about $ 7 billion remained.

This suggests that there is a clear bias in terms of financing. Big business is finding ways to bypass the restrictions of regulators on attracting investment. Small and medium-sized companies are cut off from access to the liquidity market.

Taiwan experiment with security token offering

To finance start-up companies, the authorities in Taiwan decided to go for an experiment. They plan to begin regulating the issue of security token offering( STO) from June 2019. The project is being developed by the Financial Supervision Commission, which should create a regulatory framework.

The exact mechanism for the release of this asset has not yet been approved. But it is already known that all of them will be divided into two categories. Projects with a total amount of funding above $ 1 million are allowed to run in the framework of the regulatory sandbox. If the amount is less than the specified threshold, then the company is regulated on the principles of a crown funding business.

Regulatory sandbox - a special mode of doing business under the close supervision of the authorities. Held in a restricted environment that does not allow violation of the law.

At the same time, investors also have some limitations. They will not be able to buy assets of one company for more than $ 1,620. And the total finished investment will not be able to double this amount. But these figures are still approximate, the regulator has not yet approved their final size.

Security token offering as an analogue of the ICO

In 2017, the cryptocurrency market showed rapid growth. The main reason for this was the emergence of a new business financing mechanism. By placing tokens, start-up companies were able to attract substantial sums to their projects.

However, the procedure took place without the slightest participation of the control authorities, which caused considerable criticism from regulators. Therefore, in 2018, the authorities introduced a new term, security token offering.

Security token offering is analogous to traditional stocks traded on stock exchanges. A special feature of tokens is that they are released on the basis of the blockchain, and require much lower administrative costs.

Now the main problem is to develop methods for regulating this financial instrument. Probably, the symbiosis of the blockchain's technological capabilities and experience in controlling exchange operations will be the optimal form of raising capital for small and medium businesses.

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