Security token offering (STO) has been duped as the next big thing in token evolution. But what is it, and why is it essential in blockchain investment?
What is an STO?
STO is an abbreviation for security token offering. It can be likened to an Initial Coin Offering (ICO) where investors exchange money for coins, or tokens representing their investment. But, unlike ICOs, STOs go a step further and distribute tokens that are classified as securities. These tokens are pegged to underlying real-world assets, like private equity, commodities, real estate investment trusts (REITs), bonds, and many others.
Therefore, security token offering distributes securities- fungible tokens, negotiable financial tools with linked monetary value, like part of a property. Security tokens are traded on particular exchanges. Exchanges that want to provide security token trading must fully comply with regulations, such as detailed investigations into token listings, data sharing, and investor on-boarding procedures.
What are the advantages of STO?
During the 2017–2018 ICO mania, most token issuers issued investors with bags of tokens lacking economic rights, value, and regard for the existing security laws. A new study established that the mania was exploited by people trying to defraud the world instead of improving it. According to the survey that was conducted by the ICO advisory company Satis Group, almost 80% of 2017’s ICO were “identified scams.”
Security token offering is designed to be a regulatory compliant option to standard token issuance. They aim to solve perceived inequalities on the investor side, like granting security token holders rights to dividends and other predefined profit avenues.
STO tokens are important to the issuers, too. There is no need to proclaim tokens as lacking intrinsic economic value, and they primarily have well-defined stakeholder requirements concerning the token distribution, issuance process, and secondary trades. The other benefits of security tokens are:
High liquidity. Security tokens trade on special exchanges giving investors a convenient way to liquidate their assets 24/7 throughout the year.
Programmability. Security tokens are easily programmable and executed by smart contracts.
Credibility. The truth of the matter is that the ICO space is murky. Nearly 80% of the 2017–2018 ICO investors were scammed. Still, most of the remaining 20% genuine projects failed to deliver what they promised, and many investors remained stranded with “shit coins.” Contrary to that, STOs adhere to all the security regulations and redeem the “bad image” created by the ICO scammers.
Free market. Security tokens are not restricted by jurisdictions or local regulations.
A large pool of investors. The traditional security process allows only local participants, while blockchain security tokens are open to everyone from any part of the globe.
Improving traditional finance. While traditional securities are slow and expensive because of their outdated infrastructure and extra layers of third parties, security tokens facilitate financial services at cost-effective charges.
Minimized institutional manipulation. Free open marketplaces with fewer intermediaries theoretically reduce the chances of market manipulation.
Most importantly, security tokens and STOs enable companies to build a new set of stakeholders with novel alternatives of debt, equity, or contributor responsibilities. As such, security tokens are considered a significant improvement over ICOs. They solve the fundamental weaknesses surrounding utility token sales and have the potential to transform traditional securities.
STO issuance platforms
The major projects that assist businesses with launching their STO are:
· Polymath (POLY)
Typically, they help businesses with STOs regarding regulatory support, procedures, token issuance, and other related matters.
The Tokenizer STO Issuance Platform
The Tokenizer is a blockchain investment banking system that champions accessible, transparent, and safe financial services. We believe that everyone deserves equal access to investment and fundraising opportunities. That is why we are democratizing access to capital for investors and fundraisers by making investing and fundraising efficient, safe, and accessible to everyone.
Are you in need of raising funds or investing in security tokens? Apply to raise funds through Tokenizer by filling this application form. If you want to invest in security tokens, sign up for a Tokenizer Investment Account today, and if you want to liquidate and trade-in Asset-Backed Tokens, we have a decentralized exchange designed for you! You can also contact us to order a metallic crypto card at $149 only.