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The "stock system" of modern securities originated from the ancient partnership system. as early as Roman times. When carrying out risky maritime trade, people have used contracts to combine dozens of their own assets together to form a partnership to reduce risks. At the end of the 15th century, after Columbus discovered the New World of South America and completed his first voyage around the world, more and more voyage plans began to be carried out. However, voyage trade is inherently a very risky thing, and the probability of success is very small. In order to deal with the major risks of long-distance voyage trade, in order to raise capital and share risks, the modern method of share capital raising that we often say appeared, that is, before each voyage, the capital will be returned to the investor after the voyage. The benefits are distributed to a certain extent in proportion to the share capital.

The earliest joint-stock company was the British East India Company founded in 1602, and later merged into the Dutch United East India Company. In order to raise funds, Dutch businessmen sold the company's shares to everyone. People bought shares, and the company promised the future dividends. Due to the limited number of stocks, they could not meet everyone's needs. After a few days, the stocks were sold at a 15% price increase. In order to facilitate shareholders to trade the company's stocks, the Netherlands finally established the world's first stock exchange—Amsterdam around 1602. stock exchange. Since then, the prelude to securities fundraising and trading has been kicked off. In the following 400 years, countless improvement iterations have gone through, and with the advancement of technology, countless similar financial derivatives have also appeared.

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What are ICOs

(1) Definition and origin of ICO

ICO is the abbreviation of Initial Coin Offering, initial coin offering, whose name comes from the concept of initial public offering (IPO) in the stock market. In this way, tokens are issued for the first time, and investors invest in common digital currencies such as Bitcoin and Ethereum, and then obtain the tokens of the project. In the future, the token can also be used in the designated scene platform, or traded and circulated in the secondary market on the corresponding digital currency exchange. In general, ICO is a way for the project party to obtain general-purpose digital currency through financing by issuing the project's own tokens.

The earliest ICO project was Mastercoin, which was established in July 2013. It is now renamed Mastercoin OMNI. It successfully crowdfunded 5,000 BTC on the Bitcointalk forum. Subsequently, an ICO wave was set off around the world. Many projects began to carry out ICO, and the price of tokens skyrocketed within a certain period of time, but most of the projects failed to stand the test of time and went down one after another. altar. During this period, the most famous and successful one was Ethereum, which launched ICO financing in July 2014 and raised more than 18 million US dollars. It is currently the encrypted digital currency with the highest market value outside of Bitcoin. In May 2016, The DAO completed the largest crowdfunding in the history of ICO, with a financing amount of up to 160 million U.S. dollars. Due to various reasons such as hacker attacks, it ended up being dissolved and returned to Ethereum. Immediately, in 2017, the global ICO market entered a white-hot stage, and the highest currency value of Bitcoin reached 160,000 RMB, and the whole world enjoyed itself in the currency speculation. However, the inflated bubble will eventually burst, and the market will gradually become more rational.

For project parties, ICO is essentially a financing method. Its biggest feature is that it can achieve rapid financing before a project has any performance, and provide financial support for project development.

The ICO issuance process is relatively simple, and it can be said that there is almost no difficulty. In the early stage of the project, the project sponsor needs to plan the design of a series of project-related elements such as the business model, product, technical goal, technical route, and expected R&D cycle of the project. Based on the basic product framework, issuers need to prepare project white papers for each project. The white paper is the most important and only official public document in the entire ICO process, similar to the project plan in venture capital or the prospectus in the stock issuance process, but the biggest difference between the two is that the stock issuance needs to be audited by the regulatory authority, but ICO projects do not. The white paper only needs to clearly state the business model, product form, technical principle, type and platform of raised funds, payment method, investor return method, and team members of the project. Then, the corresponding capital will be raised according to the demand, which will be used for future project development.

advantage:

(3) Advantages and disadvantages of ICO

Simple issuance: No cumbersome listing approval is required, and there is no need to apply for listing on the stock exchange like stocks, and the issuance is simple and fast.

shortcoming:

High rate of return: In the early stage, once the project is successful, the price of the issued currency will be doubled, and investors can get rich overnight without participating in any management and operation.

shortcoming:

No supervision: The listing of projects does not require the supervision of authoritative organizations such as the government. Since ICO is not supervised by any department, many people often use it to conduct illegal fund-raising fraud for the purpose of collecting money.

Since it costs millions of dollars to get money from ICO, the temptation is so great that many projects directly aim at collecting money. However, projects that mislead money and run away or do nothing after misappropriating money are a kind of harm to participants and project publishers who work hard. ICO itself has a lot of uncertainties and extremely high risks. Therefore, on September 4, 2017, seven ministries and commissions including the People's Bank of China and the Ministry of Industry and Information Technology issued the "Announcement on Preventing the Risks of Token Issuance and Financing". The approval of illegal public financing requires that from the date of the announcement, all kinds of token issuance and financing activities should be stopped immediately. At the same time, organizations and individuals that have completed token issuance and financing should make arrangements such as liquidation.

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What is STO

(1) Definition and origin of STO

STO (Security Token Offering), translated as "Security Token Offering", it can be seen that, like ICO and IPO, it is also a way of token issuance. The biggest difference between it and ICO is that STO needs to be regulated by relevant securities institutions and securities laws and regulations, and the issued tokens have securities attributes.

Before 2017, the earliest security (securities) originated from the bills of the Dutch East India Company representing the rights of the company 500 years ago, as a transaction target, which resulted in the first asset securitization platform, the stock trading market.

The ST first appeared in the US in 2017. The US SEC has paid attention to products such as blockchain Token, and its focus is to discuss whether some Token products should be included in the securities system. At this time, discussions and debates on Security Token and Utility Token have emerged.

The reason why ST is particularly popular in China recently comes from an article published on the Nasdaq official website on June 22 this year. The article believes that ST will become the main force driving the development of the blockchain industry and will make a major breakthrough in 2019 . With the entire ICO industry in distress, Nasdaq’s official voice strongly promotes practitioners to find a new way to make the blockchain landable.

Compared with ICO, which is not easily regulated, STO is safer, because security tokens must be regulated by law before they are issued. Regulations require that the tokens must be backed by the assets of the corresponding entity, just like stocks, such as the company’s income, profits, etc. . Therefore, STO is easier to be supervised, and its protection is much greater than that of ICO, but it will also bring more issuance costs, and the difficulty of issuance is also much greater than that of ICO. However, compared with IPOs, STOs have relatively low issuance thresholds and are less difficult to issue. STO is between ICO and IPO, combining the supervision of IPO, and using blockchain technology to achieve more efficient operation.

(2) STO issuance process

First, register the code, and apply for registration of a security token code (similar to a stock code) through the "Code Registration Electronic Contract".

Secondly, link the registered security token code with the corresponding blockchain smart contract "Security Token Registration": code name, security token code, decimal places, token specific information. Then submit it to the Ethereum smart contract platform Etherscan through Metamask to produce corresponding tokens, and the specific details of the tokens need to be improved later.

Finally, when investors purchase security tokens, they only need the address of the security token contract and can use Ether to purchase. After finding the address and entering the amount of Ether, the smart contract of the security token will automatically calculate the number of security tokens that can be exchanged after deducting the transaction cost from the amount of Ether entered by the investor.

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(3) Advantages and disadvantages of STO

advantage:

For the first time, global investors can trade 7*24 hours, and the market depth is wider;

Programmable, fast settlement, relatively lower regulatory costs for regulatory authorities;

The interoperability of assets has more room for imagination of financial innovation;

Comply with federal laws and regulations, lower cost than operating IPO;

shortcoming:

The investment threshold is lower than traditional ones.

shortcoming:

Global liquidity is limited by foreign exchange controls;

Incompatible global regulatory policies.

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What is asset on-chain

(1) Definition and origin of asset on-chain

Asset chaining solves the problem of extracting the unique verifiable identification and consistent rights agreement of physical assets and digital assets in the physical world in compliance with the laws and regulations of various countries, and generating non-tamperable programmable asset certificates on the blockchain to realize blockchain The one-to-one mapping between the assets below and the tokens of the assets on the chain.

The process of asset exchange can be divided into: asset acquisition, asset right confirmation and income realization. Among them, asset acquisition and income realization are achieved through "exchange", and the core of asset right confirmation is "registration", which realizes circulation through continuous asset exchange and right confirmation changes. The exchange and registration of assets are often completed by credible institutions. For example, the confirmation and circulation of physical assets such as automobiles and houses or digital assets such as stocks and securities often require government agencies or industry organizations to provide corresponding services. However, the transaction process of this type of organization is relatively cumbersome, and the process of asset registration and exchange is full of risks. Various problems such as asset loss, counterfeiting, transaction default, and information leakage may occur from time to time. Overly complicated processes and inefficient processing methods cause waste of human and social resources, and inhibit the efficiency of asset circulation and the flexibility of value exchange.

(2) The process of on-chain assets

The first step on the chain: asset naming and feature description. In the Internet, data is stored in central servers and accessed through location-based addressing. Every computer will have a unique identifier: IP address, which is used to distinguish thousands of computers connected to the Internet. An asset naming solution in the blockchain is based on the ODIN (Open Data Index Name) of the Bitcoin blockchain. It is an open system for autonomously naming and exchanging data content indexes in a network environment. Uniform Resource Identifier) ​​specification. ODIN realizes the permanent identification of resource entities, is a digital label and ID card for information indexing, and can be well applied to emerging fields such as big data, smart devices, and the Internet of Things.

The second is the issuance and transfer of assets. Many existing digital assets of related projects are formed based on the Ethereum network, issuing ERC20 tokens, and using these tokens for transactions, or combining cross-chain technology to form value exchanges with mainstream digital currencies. The transfer of asset ownership is similar to Bitcoin. In the simplest case, blockchain-based assets are bearer assets. As long as you have the key, you have mastered the ownership. In some cases, the transfer of asset ownership can be based on ERC721 tokens. For example, the Logo designed by the designer, the high-definition pictures taken by the photographer, etc. This kind of digital assets have strong unique characteristics. It is hoped that the original holders of the assets can no longer use this type of assets after the assets are transferred, so the ownership can be mapped to ERC721. Only when the only one ERC721 is in the hands of the user, the resource can be used, and the transfer of ownership is completed. For scenarios such as data where the right to use is mainly transferred, ownership transactions can be carried out based on ERC20 and other homogeneous tokens combined with key distribution.

(3) Advantages and disadvantages of asset on-chain

Smart contracts need to obtain the existing legal status of assets, and the degree of correlation between the asset on-chain field and securitized assets determines that the business of this module is limited by policies. The laws of some countries stipulate that the transfer must be carried out in a certain form, and the transaction of real assets on the chain itself also needs to obtain local permission. The legal and tax risks faced by assets on the chain cannot be ignored.

First of all, the core issue is the accuracy of the mapping when assets are on-chain. In order to ensure the completion of asset delivery and the authenticity of assets, an institution may be required to endorse. The protection of fake data and counterfeit assets requires on the one hand to collect information in various dimensions, such as pictures, to increase the credit of assets, and on the other hand, it is necessary to ensure the uniqueness of assets through a reasonable encoding format, such as through hashing functions, etc. to generate digital fingerprints to prevent counterfeiting of assets, etc.

Second, the digital transformation of each asset type must be achieved individually, using different processes, for example, for the on-chain of automotive assets, IoT sensors need to be installed and placed in the car in a certain way to allow the application to collect data and It is converted into a usable database form, which is transmitted securely and stored in the blockchain as a hash value.