The municipality of Beijing has banned another form of crypto-token sale, according to Caijing.
“Don’t do it in Beijing.”
Huo Xuewen, the chief of Beijing’s Municipal Bureau of Finance, declared in a recent speech that security token offerings would not be tolerated in the city. This cannot be considered surprising, because China began banning private cryptocurrency ventures last year.
Speaking at the ‘2018 Global Wealth Management Forum’ on the subject of wealth management services, he said (translated): “Recently, ICOs have been abandoned, and a new concept called STO has been advertised. With today’s platform, I will make a risk warning to those who are propagating in Beijing and want to issue STO. Don’t do it in Beijing. If you do it in Beijing, you will be taken away from illegal financial activities. When we have the authority to approve you to do an STO, we will say.”
What is a security token offering?
The STO is a new incarnation of the initial coin offering. An ICO is the sale of newly-created crypto-tokens to the public.
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There are a few issues with ICOs. The first glaring issue, that became apparent very quickly during the cryptocurrency boom, is that without regulation, companies will quite happily sell people worthless or non-existent goods and services, either deliberately or through sheer incompetence.
The second issue is whether tokens constitute securities. That is, are they shares of a business? Because if they are, companies must register with national regulators.
Cases in which a regulator has shut down a business for selling illegal securities are many; and despite the aforementioned issues, the general public has spent billions and billions of dollars on crypto-tokens. The act of selling them in this way has been banned in several countries, and many major companies have refused to host their advertising.
The STO is a kind of ICO that is intended to be more regulation-friendly. As the name suggests, purchasing an STO token gives one possession of a security, or a share in a business, in the classical sense of the word. The tokens represent tangible assets. There are regulations in place in many places that allow companies to sell these without having to go public- for example, if they are sold only to accredited investors.
The Chinese government banned ICOs in September 2017 and has generally looked to crush all private cryptocurrency enterprises. At the same time, however, it has been promoting the development and adoption of blockchain technology enthusiastically. Xuewen’s words reflect this policy.