2017 was the year of initial coin offering (ICO), a new way of fundraising. Since then, more than $30 billion have been raised for businesses of all sizes, from pre-product start-ups to companies with publicly traded equities on traditional stock markets. This fundraising gold rush was partly caused by Bitcoin’s huge spike to almost $20,000, but also through the invention of a more liquid investment method.
ICOs are based on the principle that a company or individual can create a digital representation of value, known as a utility token, and trade it in boardless markets. These tokens are issued on a blockchain network, an immutable and globally accessible ledger. Blockchain technology makes it easy to issue, store, transfer, and trade tokens globally.
At first, companies issued their offerings, utility tokens, to use their platforms once they were completed. But, because of the liquidity of the tokens, speculative secondary markets were created, enabling people to buy the tokens and sell them at a profit later, mostly by orders of magnitudes.
Soon, companies started to base their offerings on the investment aspect of the token compared to the utility aspect. Consequently, whether intentional or not, security token offerings (STOs) were invented. While the shift in focus brought faster fundraising from a global pool of investors, an investment-based offering, whether it be a physical paper contract or a tokenized one, turned a once unregulated form of fundraising into a regulated one.
What is an STO?
Just like in an initial coin offering, an investor is issued with a token representing their investment in a security token offering. However, the offering of an STO- security token- represents an investment contract into an underlying investment asset, such as a commodity, stocks, a piece of art, a property, private equity, luxury goods, etc. A security token is a fungible, negotiable financial tool that has a monetary value, i.e., an investment product backed by physical assets.
The benefits of security token offerings
Security tokens can be created, tracked, and traded more easily and securely compared to standard shares. For business in need of fundraising, STOs could minimize the cost of listing on the stock market. Besides, apart from an equity value, security tokens also have a dividend value (based on a percentage of sales, gross profit, or EBITDA), giving them more value compared to traditional shares that lack dividends.
STOs are a fantastic method of fundraising for companies from both the issuer and investor’s perspective. STOs work equally well for start-ups and mature companies. They also work well for high-tech companies and standard brick-and-mortar companies. It is evident that STOs are the wave of the future of fundraising. Out of the $1.5 trillion raised globally every year, 20–30% of that could be facilitated through regulatory-compliant STOs.
Tokenizer Blockchain Banking Platform
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.