The industry around cryptocurrencies and ICOs is coming of age

In 2018, 1,132 Initial Coin Offerings (ICOs) or Security Token Offerings (STOs) were successfully completed, twice as many as in 2017 (552 in total). This is revealed in the fourth ICO/STO report by PwC Strategy& in collaboration with the Crypto Valley Association (CVA). After crypto-crowdfunding continued its growth trajectory at the beginning of 2018 and already reached the total volume of the previous year in March 2018, the number and volume declined sharply in the second half of the year. Two startups, EOS and Telegram, generated a combined 5.8 billion as so-called "unicorns." Daniel Diemers, Head of Blockchain EMEA at PwC Strategy&: "The development shows that ICOs or STOs remain attractive from an investment strategy perspective for venture capital financing by investors. However, it also shows that a shift in thinking has taken place and investors are demanding more security and transparency."

New token models take off

With the persistent fall in the price of digital currencies towards the end of the year, the word "crypto winter" has become established in the blockchain scene. However, the declining investment volumes are not solely due to the latter. STOs are gaining popularity in the industry around cryptocurrencies. As token offerings for securities and rights in rem, STOs are not fundamentally different from ICOs; rather, they are a regulated form of them. As such, they combine several features of ICOs, for example, low barriers to entry for investors and traditional venture capital or private equity fundraising characteristics. Further, the underlying tokens bring additional financial rights such as dividends or shares and are bound by local laws and regulations such as KYC and AML.

In addition to securities, there is a discernible trend towards the tokenization of commodities such as gold, oil, etc., through to the tokenization of intangible goods (e.g. music rights). Daniel Diemers: "ICOs have often been designed as highly speculative vehicles and have attracted the attention of various regulators. Improved regulation through tokenization and recognition as securities is another step towards maturity. It is interesting to see how an industry has transformed in such a short time. In the future, it will be exciting to see which new business models will result or which will finally prevail."

Regulatory environment and infrastructure must keep pace with change

FINMA started to address the token issue early on and distinguishes between payment, usage and investment tokens. "Switzerland's progressive regulatory model together with the closer alignment of STOs with common securities laws provide a good basis for next developments in the blockchain space. We are glad to see that Switzerland continues to play a major role in a dynamic market that is shifting towards asset tokens and stablecoins," explains Daniel Haudenschild, President of the Crypto Valley Association.

In addition to increased protection, market participants are demanding new services such as flexible custody solutions, market data services, reliable rating services and research. With the rising expectations and increased regulatory requirements of STOs, the existing infrastructure, for example for trading and custody, must also evolve. Recognizing this opportunity, established exchanges and financial institutions are expanding their services in the crypto space. For example, Swiss exchange operator SIX announced in summer 2018 a platform for issuance, trading, settlement and custody of digital assets. Another Swiss bank has been approved to operate as the first global crypto custodian since January 2019.

Source: www.pwc.ch