STO stands for security token offering. It is a process similar to an ICO where an investor exchanges money for coins or tokens representing their investment. However, unlike ICOs, STO’s take it a step further and distribute tokens that fall under the status of securities.
As such, security token offerings distribute securities. These are tokens that are fungible, negotiable financial instruments with attached monetary value, like a part of property or company. Types of STO methodologies, we develop are listed below.
- Equity Token
- Reserve Assets Token
- Debt Token
What Are The Benefits Of STO?
Security token offerings are meant to be a regulatory compliant alternative to regular token sales. They aim to correct perceived inequalities on the investor side, such as granting security token holders rights to dividends or other predefined revenue streams.
STO tokens are beneficial to the issuers, too. There is no need to proclaim tokens as being without any intrinsic economic value, and they typically have clearly defined stakeholder obligations regarding the token distribution, issuance procedure, and secondary trades.
What Are The Benefits Of STO?
- Credibility. ICO space is chaos, to say the least. Many people were scammed, even more projects did not deliver what they promised, and most investors remain stuck with useless tokens. In contrast, STOs follow all regulations and allow blockchain and cryptocurrencies to restore some credibility.
- Improving traditional finance. While traditional securities are slow and expensive due to their old infrastructure and layers of intermediaries, security tokens facilitate services at a lower cost.
- Programmability. Security tokens can be programmable and enforced by smart contracts.
- Free market. Borders or local regulations do not limit security tokens.
- Many investors. Traditional security deals involve only local individuals, while security tokens are open to anyone on the internet.
- Reduced institutional manipulation. Free and open market with fewer mediators should reduce market manipulation, at least in theory.
Initial Exchange Offering
Initial Exchange Offering (IEO) is a fundraising mechanism where the issuers create tokens for their projects and raise funds using the user base of the exchange. IEOs are an agreement between the fundraising company and crypto-exchanges like IDAX, LATokens & Binance, with some pre-conditions.
Fundraising through IEO is considered safer by the investors since the crypto-exchanges would ensure due diligence before accepting any project. Initial Exchange Offering is a new booming trend and has the potential to change the way we look at token-based fundraising.
This fundraising option gives the investors the confidence of liquidity while giving the projects a ready-made user base to target their marketing efforts. Also, it reduces the burden of the KYC/AML process on the issuers as the exchanges take the responsibility of verifying investors and projects.
