According to ConsenSys General Counsel Matt Corva, when conducting a CTO, there is no need to register the issue with the US Securities and Exchange Commission or limit sales of coins only among accredited investors. This makes no sense, since it is not about selling “digital” securities, but about selling consumer goods, “which are not similar to an investment contract, nor to collateral, nor to any other financial instrument”.
This is the main advantage of CTO, which greatly simplifies the launch of new blockchain projects, making this process simpler, faster and cheaper. In essence, such an approach implies a return to the “good old” ICO for blockchain startups without the threat of prohibition and / or punishment from the regulatory authorities. That is, anyone can initiate an initial offer of coins by creating a website and writing white paper.
For comparison, you can remember Kickstarter, where people can also finance the creation of a new product (video game, recording a music album, creating a toy, gadget, food, etc.) and then get this product at a discount, thanks to the manufacturer, autograph or other bonus. According to the Brooklyn project, crowdfunding through CTO will be just as easy.
# 2. Lack of speculative interest
CTO implies a permanent or rather long limitation (more than 3 months) on the sale of tokens in the secondary market, which makes it impossible to purchase tokens at a discount during CTO and their subsequent resale to extract speculative profits. Buying and selling tokens in the secondary market after the launch of the project is also impossible (for some time or at all). Limitations are supposedly imposed by smart contracts.
For investors, traders, speculators and other parties who make money on the course speculation in the short, medium term, this is bad. But for everyone else, this is definitely good, since such an approach will reduce market volatility, increase user confidence in a product or service, and also protect against manipulations with the price of a token:
- Pump and Dump. Inflating prices and the subsequent sharp sale of the asset.
- Wash trading. Buying / selling an asset between two or several traders to pump the trading volume, which creates the illusion of interest of the masses in this asset and can lead to an increase in the rate. After pumping volume, the price returns to normal. Thus, you can earn both on the growth and on the fall in the value of the asset.
- Placing a large order to buy or sell an asset without intending to execute it to create the illusion of great demand. That, as in the case of wash trading, leads to a temporary change in quotations.
- Bear raiding. Reducing the value of the asset due to the large number of sell orders from a group of traders in collusion. A very popular way to spread panic in low-capitalization cryptocurrency markets.
The inability to carry out these and other manipulations will save money for ordinary investors and increase confidence in blockchain startups
and the market as a whole.
# 3. Low course volatility
Since tokens issued via CTO
will have restrictions on sales in secondary markets and will not bring passive income, this means that they will not have investment and / or speculative attractiveness. Consequently, the cost of CTO tokens will depend only on the success of the startup itself:
- if a startup (its product and / or service) is popular among users, then the cost of tokens will increase due to an increase in demand;
- if users (its product and / or service) do not like startup, then the cost of tokens will fall due to lower demand.
Due to this, the rate of CTO tokens will become stable and easily predictable, which will be a big plus for a startup and its users: the product and / or service will not be in high demand if their value jumps by ± 20–100% within a month (which is typical of all cryptocurrency).
# 4. Low entry threshold
The ICO-model was extremely popular in 2017-2018, because it made it very easy and quick to launch a startup with a minimum starting capital. In fact, anyone could create a website, write white paper and use one of the specialized blockchain platforms to create a new coin and sell it to investors. Provide a MVP, pass any tests, provide information about yourself or make a detailed business plan - all this was unnecessary.
The crowdfunding model from the Brooklyn project involves reducing the entry threshold for startups to almost the ICO level. Presumably, this will have three important consequences:
- allow blockchain-enthusiasts without money and support to realize their ideas;
- will contribute to the development of technology by testing new ideas and concepts;
- will contribute to attracting new investments to the market through the development of blockchain technologies and new projects.
# 5. High liquidity
are also interesting in that anyone can participate in them, and not just accredited investors, banks, venture funds, and other major players. Thanks to this factor, many ordinary people became dollar millionaires, having invested in time on the initial offer of Ethereum, EOS, Cardano and other unicorn projects with high ROI.
After the arrival of the SEC and other regulators, such investments have become inaccessible to ordinary people, since these are high-risk assets, which only very rich people or specialists with appropriate education and experience have the right to invest in. On the one hand, this is good, because in this way people are protected from fraudsters and high risks. But on the other hand, this approach also closes the market for those who buy tokens not for money, but for the use of goods or services of a startup.
The CTO crowdfunding model returns consumers access to this market, which is good for all market participants:
- blockchain startups increase the reach of the audience when searching for primary funding for their projects, that is, the chances of finding money increase;
- users get access to services of interest immediately after their launch, without overpaying for it due to speculative price forcing;
- the market becomes more stable and efficient, which increases the growth of investment in general.
How to create a consumer token
In order not to have problems with government regulators and to run the CTO in accordance with all laws, rules and regulations, the Brooklyn Project recommends using their instructions when developing the function, capabilities and limitations of the consumer token. This instruction contains ten concepts:
Consumer Token Design. The created virtual coin must correspond to the characteristics of the consumer token and be usable within the framework of the launched service.