Regulation is often seen as an obstacle for Blockchain projects. Since their aim often is to cut out specific intermediaries in processes or networks, a regulatory party is usually not a well-seen participant in it. On the other hand, the current situation shows that regulation could sometimes help to overcome issues related to the right transfer of virtual belongings to real-life rights.
How a security token can serve as a projects stock
Especially if we are speaking about ICOs that are facilitating tokens as a security token, we need to ensure the correct way of distributing funds. Simply speaking, a security token can be used to facilitate the token as a revenue share. Each token holder receives a specific part of the revenue made by this project, according to his stake. Comparable to a stock.
Different revenue formats causing problems
Suppose that the project will generate revenues through many ways. It has payment gateways through which customers can pay with many different cryptocurrencies as well as with fiat currencies. How to distribute all these revenues, so that the token holders get their granted piece of the cake?
Obviously, if the ICO creates an Ethereum based token and is being run on the Ethereum-Blockchain, it will be easier to distribute the funds. Investors are identified by their Ethereum address, hence revenues generated via ETH can be easily transferred to them.
But things start to get complicated when the project generates revenues in – for example – fiat currencies. How can these profits be shared with the investors who are only identifiable by their Ethereum address?
This question also recaptures the general, philosophical question of needed trust. If you are making profits in ETH, they can be shared automatically and technically determined. However, to receive your share of revenue in fiat currencies, you need to trust the project to manually convert the profits into ETH and distribute them. This process is also not unified.
Regulation to unify the revenue sharing process
A governmental regulation, however it is not wanted by most of the ICO supporters, could help them to unify the process of sharing revenues. While we are in the current stage still living in a non-Blockchain world and in most destinations need to convert our money back to fiat currencies at least to some extent, the relationship between the Blockchain and the real-world may be regulated. It means that the regulation actually determines how different formats of revenues can be handled and how they should be exchanged or transferred to the customer. Not given this regulation, the project theoretically can just keep the revenues since it’s distribution is not technically ensured.
Therefore, a regulation of ICOs can create many hurdles that are not existing right now and could decrease the compared advantage to stocks. On the other hand, it could really help to establish more unified and maybe even more authentic tokens used for revenue sharing.