Deputy Governor of China's Central Bank Calls STO Funding as 'Illegal Financial Activity'

Bhushan Akolkar
By Bhushan Akolkar
Posted on Dec. 10, 2018
Deputy Governor of China's Central Bank Calls STO Funding as 'Illegal Financial Activity'

In its continued crackdown on digital assets, the People’s Bank of China (PBoC) issues an outright ban on Security Token Offering (STO) on Saturday, December 8, reports South China Morning Post. 

Just like an ICO, Security Token Offering is also a fundraising activity. However, in STOs, the tokens are backed by tangible assets. Also, the holders of the security tokens for a particular company, directly share the profit and revenue. Since these tokens are treated as securities, they are also subjected to federal laws and regulations.

While speaking at a finance forum in Beijing, deputy governor of PBoC - Pan Gongsheng - said that despite last year’s blanket ban, financing and fundraising through ICOs and STOs was still happening on a large scale. 

“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,” said the deputy governor.

Deputy Governor Raises the Issue of Financial Frauds Through STOs and ICOs

The Chinese cryptocurrency market was huge before the outright ban on digital currencies last year. Nearly 80% of the global crypto transactions and ICO financing took place in China itself. Gongsheng said that a majority of the ICO fundraising schemes turned out to be financial frauds, pyramid sales scheme, and illegal fundraising. 

Thus he says that Beijing was left with no option but to bring a blanket ban, else it would have resulted in a chaotic crypto market damaging the country’s financial strength. 

The deputy governor’s warning comes just within ten days of a similar warning by the chief of Beijing’s Municipal Bureau of Finance, Huo Xuewen.

 Local news publication Caijing quoted Xuewen saying:

“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. My advice is to only engage in such offerings when the government has legalized them,” he said.

While China continues with its crackdown on digital assets, it also continues to spearhead several projects in the blockchain space. The Chinese government has taken several measures to foster blockchain developments by incentivizing local businesses for moving towards adopting that technology. 

Blockchain being termed as ‘Revolutionary’ by several experts, China plans to stay ahead in this game and currently holds the most number of blockchain patents than any other country on earth. 

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