As I’ve started to really push the Security Token narrative, I’m slowly discovering a nascent battle of wills going on.
It stems from an “us vs. them” mentality and ultimately I think Security Tokens are being given an unfair lens because of it.
That battle is over the perception that STOs, Security Token Offerings, will only be the playground of the rich and the common folk will have to beg for scraps, having to accept a price premium on the publicly traded tokens.
Here’s the thing: US Accredited Investor Laws (and similar laws around the world) purposefully limit the investing opportunities of those without a net worth exceeding one million, or an annual income of $200,000+.
The line of thinking is that in order for an individual to invest in securities, they must have the capital to risk. The criticism argues that other activities, such as driving or giving financial advice, require a license or a certification, the only thing you need to invest with VC status, as an angel investor, or participate in offerings like a Reg D 506(c) is have a seven figure bank account.
That’s frustrating, right?
After all, you can go to a casino and gambling your money away to nothing regardless of your wealth. You don’t need some special status to go hundreds of thousands in debt acquiring a useless degree. You certainly didn’t need anyone’s permission to watch your 401(k) be lit on fire during the 2008 recession.
So what’s the deal? Why lock us out of potentially lucrative investments?
Well, for one, we just saw the best example in recent memory.
ICOs disrupted the accredited investor model in a big way. It was a game changer. But, as we’ve seen, it caused harm to many people out there, a majority of which had never invested before.
High risk investments are just that. People were easily manipulated by promises of lamborghinis and yachts. The dream of an overnight millionaire. You might be one of them.
So, the SEC exists to protect us against ourselves with regard to securities. I know, it may seem like big government and an overreach and a violation of our civil liberties, but the fact of the matter is that the protection goes both ways.
If companies were openly allowed to advertise and scam investors like we saw in the ICO bubble, throughout the whole economy, we’d have chaos in the streets.
The fact of the matter is, maybe you and I are smarter than the average investor, but the protections are in place for the average investor.
After all, the accredited investor status is, by definition, an exemption.
In different words, the SEC’s purpose is to protect the everyday investor, so by allowing the accredited investor exemption they at least create a sufficient and protective layer between potentially complex investment securities and the general investing public.
And think about it. It’s not a complex loophole. You have a million bucks, you get to play in the big leagues. The loophole is there if you want it bad enough.
All that being said, my personal position on this matter is that I agree the exemption does create a broken system where people who able to achieve this status take advantage of those who can’t.
It’s a fine balance to strike, and I think STOs will force the SEC to reexamine this exemption. They’ve already indicated they are considering lowering the barrier to entry.
Meanwhile, if you’re not able to have a windfall of $1 Million (wouldn’t that be nice), you are still full capable of investing in and profiting from STOs.
Let’s walk through the SEC exemption types so you better understand what I mean.
Reg D 506(c) – US Accredited
Reg D 506(b) – US non-accredited up to 35 investors, must have pre-existing relationship
Reg S – Outside US, no wealth restrictions
Reg CF – US non-accredited up to $1,070,000 total raised
Reg A+ – $50 million from both accredited and non-accredited investors
Do you notice something? The only exception that is specific to accredited investors is the Reg D 506(c).
Issuers looking to offer their STO do not have to specifically target accredited investors, though it is the exemption with the least restrictions regarding amount and number of investors.
Adding to that, there are a number of projects building STO platforms and exchanges that you can invest in using their token.
Here’s a short list:
Ravencoin – like Bitcoin, but for transferring assets rather than currency. No ICO, no pre-mine, no CEO, and ASIC resistance.
Harbor – All-in-one platform for tokenizing private investments. ERC-20-compatible and regulatory-compliant token standard, the R-Token Standard.
Swarm (SWM) – STO launch platform. Masternode program.
Own (CHX) – A platform to buy and sell shares. Masternode program.
OpenFinance Network – a regulatory-compliant platform for trading security tokens. Partnered with Harbor, Polymath, Swarm, and many others in the security token space.
Coinlist – a platform focused on regulatory compliant token sales
Preflogic – Platform for launching STOs. Ready to go to market with STO wizard and CERC token standard. Currently offering Reg S through invest.preflogic.com. Possible Reg CF in the future.
So you can see, there’s a ton a opportunities already cropping up. I refuse to let simple FUD stand in the way of massive potential, and I think people need to wake up to this giant shift in this space and the finance industry overall.