During 2017 and 2018, the market values of the majority cryptocurrencies went through some eye-popping roller-coasters. In the span of three months, the price of Bitcoin went up from $6,336.94 (USD) on November 12, 2017, to its highest price of $19,758.2 on December 17, 2017, before dropping to $7,389.79 on February 5, 2018. As cryptocurrency prices moved up, funding for blockchain projects poured in. Most of them were in the form of initial coin offering (ICOs). One example is in May 2017, when a web browser called Brave completed an ICO. It raised $36 million in USD within the first 25 seconds of the ICO. The dramatic declining in cryptocurrency prices eventually led to the cooling down of the ICO madness. Per statistics from ICODATA.IO, during the first quarter of 2018, a total of $3,874 million USD were raised via ICOs. In contrast, during the first quarter of 2019, only $100 mm USD were raised through ICOs.
A fundamental reason for the high volatility in cryptocurrency prices and the ICO bubble bursting is the lack of control and regulations on ICOs. This led to a high failure rate of ICO-funded blockchain projects. Fewer than half of ICOs have survived over four months after their offerings, and nearly half (around 46%) of ICOs taking place in 2017 had failed by February 2018.
Facing the ICO issues, the blockchain community has started soul-searching for an alternative solution. The mainstream view of the blockchain community changed from focusing exclusively on the initial ICO model of raising funds, to funding models involving other parties (for example, governments, investment bankers, and lawyers). A leading solution is the security token offering (STO).
To help our audience gain an overview on the context of STOs quickly, in this book, we explain the basic concepts behind the blockchain technology, traditional funding approaches for startups, and the basics of STOs. We made comparisons between ICOs and STOs to explore the differences between them and the reasons that STOs can potentially provide a viable solution to resolve some of the ICO drawbacks. To help the reader understand the implications of STOs better, we dedicate one chapter (Chapter 3, Monetize Digital Tokens Under U.S. Securities Laws) to covering some of applicable laws on STOs. For IT practitioners, we show a way to implement an end-to-end Dapp for the issuance of a security token. In fairness, STOs are not necessarily perfect neither. At the end of Chapter 2, STO – Security Token Offering, we point out some challenges faced by STOs.
Stablecoin is a solution that the blockchain community came up with to address the high volatility issue in cryptocurrency prices. In this book, we first cover the basics on money. We then proceed to illustrations on different types of money. This lays the foundation for explaining the concepts on stablecoin. In Chapter 7, Stablecoin Smart Contracts, we give a working example on how to implement stablecoin issuance.