Enter 2018, a terminology was introduced into the cryptocurrency world – STO; Acronym for Security Token Offerings.
While most people were familiar with ICO but given its number of scam projects that never delivered, STO was brought into the crypto family.
And soon the STO era started that provided far better protection to the blockchain investors and carved the way for mass adoption of the digital economy. Scroll to know about Security Token Offerings in brief.
What is STO?
STO stands for Security Token Offering. It is the alternative to private and venture capital financing for companies across the globe. Security token offerings, popularly known as security tokens, offer a number of financial rights such as equity, vote casting, income shares, profit dividends and access to the investors. A security token performs evenly in functionality and confirms ownership of the tokens via blockchain transactions.
Unlike ICO, STO is the sale of the security token. All in all, STO is a combination of Security and ICO.
What are the key benefits of Security Token Offerings?
Security Token Offerings has unlocked a user- friendly, cost-effective and safe means for the investors to invest in companies, they choose.
With all the discussions around security token offerings, potential investors and buyers have the most obvious question: What makes this STO investment stand out? Let’s take a look at some of the benefits that Security Token Offerings have in store for investors and buyers.
1. Security tokens are programmable
The main benefit of security tokens over conventional financial securities is that they are programmable. This means you can include certain rules within the security token that will apply automatically. These rules can become an effective way to impel ownership and guarantee price stability.
2. 24*7 full liquidity
The current securities can only be traded in working hours on weekdays. It requires a few days before securities are settled. Tokens can be organized using blockchain technology quickly or promptly. It is a significant benefit for investors as compared to traditional investments.
3. Access to the global market
An organization can offer its security to the global market giving it a higher chance of success. Launching an IPO involves a lot of fees to banks and advisors across different sectors. This is not in the case of STO as it lowers the fees to raise funds.
4. Fractional ownership
Fractional ownership is quite complicated when dealing with high-priced assets. Since security tokens allow investors to buy only a fraction of collectibles or arts, people can extend the portfolios without much money.
5. Completely traceable & embedded compliance
Regulatory compliance is key for security tokens. These regulations vary on different factors such as jurisdictions, investor type and asset type. Incorporating them is a bit hassle. But, since security tokens are easily programmable, the regulations can be embedded in the code. This means regulations become rapidly easier and automatic once the system is set up.
Besides, STOs are fully traceable. It is possible to trace a coin, check who owned it and for how long.
What are the main challenges with STOs?
On one side where STO offers a myriad of benefits, there are certain risks and liability involved while raising a fund with STO. One of the biggest challenges that STO platforms face is increased regulation. This places a higher administrative burden as every process will have to be set up for custodianship, exchange approvals, know your customer (KYC), tracking ownership, AML, etc. to ensure they adhere to the relevant securities law.
Though the process of STO is cheaper than IPO, the additional post works turn it more costly and raise the barrier of entry.
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