People’s Bank of China Officially Bans Security Token Offerings

During the last couple of months, China has often reiterated its aggressive position towards digital currencies. A similar event recently took place, after the People’s Bank of China (PBoC) decided to ban security token offerings, also known as STOs.

Banning the Successor to ICOs

For those who do not know, STOs are considered the successors to ICOs. They’re quite similar in purpose, yet there are a couple of differences between the two crowdfunding methods. As such, an STO investment is financially-backed via a company’s assets, revenue or profits. On the other hand, ICOs do not offer any investment backing, yet start-ups give investors value and utility tokens.

It seems that the move was fuelled by the fact that despite the bans on Initial Coin Offerings, numerous start-ups were still holding token sales within the country. Pan Gongsheng, who is the deputy governor of the PBoC, stated that both ICOs and STOs are illegal activities, and they’re still quite prevalent in China. According to him, “the STO business that has surfaced recently is still essentially an illegal financial activity in China […] Virtual money has become an accomplice to all kinds of illegal and criminal activities.”

Additionally, the deputy governor stated that most of the ICOs and STOs taking place in China fail to abide to the regulatory framework, and thus tend to conduct activities such as pyramid schemes, fraud and more. According to him, if the PBoC and Chinese government failed to take action back in September 2017, the ICO and digital currency market would have massively hurt the country’s economy. Of course, there aren’t too many studies that can determine whether this is true. However, it is important to keep in mind the fact that before the crackdown took place, China was the world’s biggest hub for ICOs and digital currency transactions. In fact, a study showcased that over 80% of crypto-related activity was taking place in the Asian country.

The chief of an important Chinese financial regulator also recently warned crypto-related start-ups and the international community to avoid promoting and holding STO and ICO activities in Beijing. Failure to do so would lead to prosecution and deportation for the foreigners involved.

Based on everything that has been outlined so far, it seems like the fintech market in China is no longer a viable option for either start-ups looking to promote their services, or potential investors. However, activities such as holding cryptocurrency for a profit aren’t yet considered illegal. After all, completely banning a decentralized cryptocurrency would be a difficult endeavour.

Featured Image via BigStock.