What is Security Token Offering (STO)?
Security Tokens are those tokens that have passed the Howey Test. These tokens derive value from external assets. Security Tokens are subject to federal securities and regulations. These tokens have powerful uses if regulations are properly met. But if the ICO (Initial Coin Offering) does not follow the regulations, these tokens can be subject to penalties. Security Token Offerings or STOs are soon to replace the older financial tools with blockchain based and crypto token assets. It is said that STO is the future, this is because STO is safer because of strict regulations than utility tokens. Like Bitcoins are said to be “programmable money”, security tokens are said to be “programmable equity”. Similar to ICO, STO is the process to issue security tokens after going through checks like KYC.
STO represents ownership information of an investment product, which is recorded on a blockchain. In normal equity stocks, ownership information is recorded on a document and issued as a digital document. But in case of STO, it is recorded on a blockchain and issue as a ‘token’. STOs provide opportunities for entrepreneurs to raise funds by issuing digital security tokens to investors. This exchange is 100% regulatory compliant.
Advantages of Security Token Offering (STO):-
Below are the advantages that STOs can give in the future:
- STOs will provide liquidity to investors.
- Security tokens will allow companies and investors to tokenize all tangible assets.
- It can be used by all and any companies, not just blockchain companies.
- Makes the fundraising process accessible for all entrepreneurs.
- Helps investors from anywhere in the world trade across the globe.
- Maintains agreeable global regulations.
- Compared to other token offerings, STO is much cheaper. This is due to the removal of middlemen.
- Blockchain reduces the need for paperwork.
Disadvantages of Security Token Offerings (STO):-
The main challenges or disadvantages faced by STOs are:
- Increases administrative burden due to the removal of middlemen.
- Raises barrier of entry more than utility ICOs due to security laws which include conducting KYC, AML, etc.
- May reduce the pool of investors because of regulations in some jurisdictions.
STO Listing Websites
There are several websites providing STO Listings such as listings of Upcoming STOs, Ongoing STOs, Pre STOs, etc. Some of these sites are:
- ICO Marks
- ICO Rating
- STO Analytics
- STO Check
- STO Scope
- Token Market
The emergence of security tokens and STO has given rise to blockchain technology. It has given rise to prudent cases of uses such as converting tangible financial assets of the “real-world” to security tokens. Security Tokens are soon to play a crucial part in a bigger change towards an open financial market system. With tons of sites, online STOs, etc, a wide range of security tokens can be traded with compliance to regulations, anytime, anywhere, on a global level. This makes it ideal for investors to invest unlike ever before, and for entrepreneurs to raise funds super easily.