STO stands for Security Token Offering. This is a crowd-funding practice or method to launch new security tokens, opening businesses to new opportunities to raise money by issuing digital security tokens in a regulated manner. Issuers may come from several different divisions, enterprises, real estate, and venture capital firms.
This movement is gaining a lot of momentum at the moment and has fallen under the ICOs (Initial Coin Offerings) isle, which you may be familiar with due to all the hype in the past couple of years.
In case you are not familiar with ICOs, this is a crowd-funding method in the cryptocurrency realm where investors can purchase utility tokens during an offering, which serve as coupons for a product or service, and such tokens can be traded, sold or held.
When ICOs first became popular everyone wanted a part in it, it became a huge business raising 5.6 billion in USD in 2017 alone according to cryptobriefing.com.
ICOs were born from the IPOs (Initial Public Offering) crowd-sourcing idea, which is directed towards the stock market securities like stocks, bonds, warrants and capital notes to raise funds with several requirements and regulations; investors must be accredited, as opposed to ICOs which they do not.
Given the risks and uncertainties of ICOs related ads have even been banned from main social media sites, and still are in some platforms; due to all the scams people started losing interest in this type of crowd-funding, and this is where STOs most likely originated.
Different from ICOs which are basically unregulated, STOs must comply with regulatory governance because they are contract based offerings very similar to IPOs.
STO is a fuse of ICO and IPO; it is used by companies to raise capital for their projects, with the decentralization, crypto and blockchain benefits and similarities of the ICOs and the regulatory compliance of the IPOs as in the stock market.
There are two main reasons why security tokens and STOs have become so popular now: stronger regulations and the separation of speculation from the utility. The crypto community and investors waiting on the sidelines have been thirsting for greater security, stability, and liquidity which provides the investor more confidence to invest.
Here are the criteria to determine what is an investment contract (security) or not:
- It is an investment of money;
- The investment in a common enterprise;
- There is an expectation of profit from the work of the promoters or third-party.
To partake in an STO would be very similar to an ICO; you can purchase your token during an offering receive your shares in the form of tokens that represent an asset whether it is a company or a piece of real estate and then trade, sell or hold as you wish. Thus, security tokens are essentially financial securities backed by real-world assets (tangible assets, profits or company revenues).
STOs as an advancement from ICOs provide several advantages for the issuer and investors because it gives assurance against many levels of fraud and scams providing safety, transparency, and flexibility.
In essence, STOs are very similar to the stock market, however, it is much faster and cheaper. It is also very attractive because it is available worldwide, so selling fractionated assets on tokenized exchanges is likely to be substantial to the global market. It can serve as high leverage for companies and assurance for investors. Some are stating STOs are the natural growth derived from the ICOs and sure seems so.
The idea that theoretically an investor could own part of something big like a piece of real estate in New York (for example) from anywhere in the world in the form of tokens without needing to invest in the entire project is quite enchanting. This method opens doors of opportunities for all kinds of investors, including people who probably wouldn’t be able to invest otherwise.
You might want to read “Decentralizing Property Ownership”
This evolution in the decentralized world of crowd-funding could represent a fast-growing major component in this market´s infrastructure expediting demand and generating the much needed liquidity.
We are curious, would you invest in STOs? Why?
Disclaimer: Our team works hard to bring you the best content in the cryptocurrency market, but it is only our point of view and not legal advice, and may be divergent from other opinions, so please do not make any decisions without concluding studies of your own to understand the profit possibilities and uncertainties involved at your own risk.