What is an STO (Security Token Offering)?

You remember the ICO craziness of 2017, don’t you? Dozens of startups rushed to get the best of this new fundraising method and hundreds of investors were blinded by incredible returns on their funds.

However, this rally couldn’t last forever. The bubble eventually burst, many investors lost their money, especially those who got on the train in late 2017. Authorities have eventually turned their attention towards big sums of money flowing out of their control and tightened the screws.

That’s when Security Token Offerings (or STOs) stepped into the light.

What are Security Tokens

In the traditional markets, securities are tradeable assets that represent a certain share of a company’s property. If you hold securities of, let’s say, Apple, you get your share of the revenue they gain when selling iPhones and other products.

Security tokens represent a digitized form of securities. In the same way, security token holders get the right for a company’s revenue share.

In the past, the only way for a company to issue securities and raise funds was to conduct an IPO (Initial Public Offering) which was a pretty costly and long procedure. Now that securities move to the blockchain, the whole process of fundraising and distributing revenue shares passes faster and more transparently.

Benefits of STO vs IPO

Moving the fundraising process to the blockchain provides all sides of the deal with the following benefits:

  • Lower Costs. Launching security tokens is much cheaper than conducting an IPO.
  • Faster Deals. Security tokens can be exchanged instantly as there are no intermediaries to control the deal.
  • No Geographical Borders. Companies are no longer restricted by their geography and can raise funds from other countries as well.
  • Higher Liquidity. If security tokens of a particular company are listed on an exchange, you can easily buy or sell them there.
  • Trading 24/7. Online exchanges work with no holidays and working hours limitations.

Benefits of STO vs ICO

Most of ICOs conducted in 2017 distributed utility tokens that could only be used within their native platforms and had no value on the outside.

However, all the STO benefits can be applied to ICOs as well, if you compare them with traditional means of fundraising. But from the investor’s point of view, STOs are a much more secure way to multiply their wealth, and here’s why:

  1. More strict regulations mean more protection.
  2. Projects that raise funds via STO are usually more mature and reliable than those who distribute utility tokens.
  3. The STO market grows while ICOs are at a steady decline.
  4. Lower volatility and less market manipulation.
  5. This is a new growing trend in the financial world.

STO comes with some disadvantages as well. For example, it can be limited to accredited investors and much more time and efforts are needed for a company to launch it. But still, the benefits obviously outweigh all the cons, so more and more companies will turn their attention towards blockchain in the nearest future.


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