China has repeatedly assumed its negative stance against cryptocurrencies over the last few months. Just recently, the People’s Bank of China (PBoC) has decided to ban security token offerings (STOs).
STOs are deemed as the successors to the ICOs. However, the two crowdfunding methods have several differences. An STO investment is financially-supported through a company’s assets, revenue or profits while, ICOs do not provide any investment support, but startups offer investors value and utility tokens.
It appears that PBoC has decided to take the move against STOs after several startups are still able to hold token sales in the country, despite the ban on initial coin offerings (ICOs).
“[T]he 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.”
Pan also says that many of the ICOs and STOs happening in China have failed to adhere to the regulatory framework and have the tendency to carry out activities like pyramid schemes, fraud, and others. Pan states that if the PBoC and the government did not act in September of last year, the ICO and cryptocurrency market may have caused huge damage to the country’s economy. However, there are very few researches to corroborate this claim. Notably, before the implementation of the crackdown, China has been the largest center for ICOs and cryptocurrency transactions. In line with this, a study indicates that more than 80 percent of crypto-related activities occur in the country.