Initial coin offerings (ICOs) have raised billions of dollars in the last few years, oftentimes without the backing of real assets.
As the digital currency market evolves, a growing number of companies have been leveraging security token offerings (STOs), innovative sales where entrepreneurs distribute digital assets backed by actual securities.
One type of STO involves equity tokens, which represent units of ownership in individual companies.
Media Shower, a Boston-based content marketing agency, and Lannister Holdings, Inc., an Arizona-based technology company, recently announced that it had released The Equity Blockchain Project, which businesses can use to create equity tokens.
[Ed. note: Investing in cryptocoins or tokens is highly speculative and the market is largely unregulated. Anyone considering it should be prepared to lose their entire investment.]
The aforementioned project, an open-source toolkit that aims to combine blockchain technology with more traditional fundraising methods, could be a game changer.
Thus far, many of the digital tokens sold through ICOs have failed to supply their buyers with stakes in companies.
In some cases, the entrepreneurs have offered assurances they would use the money raised for research and development, while in others, the digital assets sold are “utility tokens,” in that they are designed for a specific ecosystem.
Instead of selling digital assets that lack “any real underlying value,” entrepreneurs can use The Equity Token Project, which “lets blockchain entrepreneurs fund companies with real equity, like a real company,” said John Hargrave, CEO of Media Shower.
By doing so, “investors can begin owning a real piece of equity in businesses, not just a blue-sky idea,” stated Joseph Snyder, president & CEO of Lannister.
Thus far, the initiative has received a warm reception, according to Hargrave.
“We’ve had terrific feedback on The Equity Token Project — it’s blowing up on our social media,” he stated.
“Yes, the goal is to provide clarity on regulation — because it’s exactly like issuing traditional equity in a company, we’re just recording that equity ownership on the blockchain.”
“We hope this provides a path through the wilderness, so that we can get the blockchain industry innovating again.”
A Work In Progress
In spite of these positive developments, entrepreneurs should keep in mind that The Equity Token Project is a work in progress.
When asked to review the initial code base in the project’s GitHub, several technical analysts emphasized that it is a bit limited in nature.
Zhang Jian, former CTO of Huobi and founder of digital assets exchange FCoin, described the available code as “both modest and rudimentary.”
Dean Anastos, CEO of BlockChain Developers, offered a similar point of view.
“I looked at their code and it is an extremely basic token contract,” he stated, A simple ERC20 token without any special features.”
“It seems like they havent uploaded their full project to github,” added Anastos.
However, Snyder emphasized that there is more to the project than simply the code that is publicly available.
“The project itself is intended to be more expansive than just the Open Source code portions which are competent (albeit not complex) Ethereum smart contracts,” he stated.
“We are currently working, in conjunction with Media Shower, to bring together the various platform participants needed for U.S. (and then global) companies to properly offer equity via blockchain tokens.”
“This includes Securities Attorneys, Broker/Dealers, Exchanges, Market Makers and (ideally) the SEC’s recently announced FinHub division to name a few.”
Snyder also elaborated on the project’s future developments.
“The Equity Token Project’s next step is to launch the front end user portal where companies will be able to engage with the various service providers, obtain cost and compliance information and begin their processes of discovery around selecting an Equity Token Offering as opposed to a Private Placement or traditional IPO. (We aim to have the portal live before the end of the year)”