What is behind Security Token Offering?
While it is typical for ICO that tokens offered by companies serve as a form of crowdfunding, Security Token Offering (STO) will bring significant upgrades in this respect. Unlike ICO, STO will be real financial securities, so your purchased tokens will be covered either by the property, profits or profits of the company that issues them.
It is a strong assumption that in the second half of 2018 and in 2019 we will see a huge increase in STO, which may cause the complete disappearance of ICO. The reason is simple - greater certainty for potential investors, and hence a lower chance of fraud. STO is a natural bridge between the traditional finance sector and the blockchain, benefiting from both spheres.
The difference between ICO and STO
ICO is a popular crowdfunding method for crypto projects. Through this process, a company that has either an established project that does not work on a blockchain, or is trying to bring a breakthrough concept using a blockchain, offers digital tokens to investors. In the case of so-called "Utility Tokens", it is a promise of future access to the company's products or services.
In contrast, "Security Tokens" have similar features to IPO - Initial Public Offering (IPO). In the case of IPO, this is the process in which the company first enters the stock market and offers its shares to the general public. There are several reasons why companies want to implement an IPO, but the most important one is the need to increase the capital of the company, ie to obtain additional financial resources for its development.
As mentioned above, the main difference between ICO and STO lies in the fact that Security Tokens are based on something tangible like the Company's assets, profits or revenues.
Benefits of Security Tokens
One of the main benefits of issuing Security Tokens is that they are governed by regulatory frameworks, so it is less likely that authorities such as the US Securities and Exchange Commission (SEC) will have reservations about them.
Securities laws are well defined in most countries. Security tokens would thus inherit a well-established legal framework and structure that would support purchaser's rights and thus protect them from negative situations.
The founder of Binance also shares the same view as to the benefits of STO from the well-functioning of securities. According to him, ICO is an excellent opportunity to run its own business, and if security features that work as an IPO add to it, STO can be the right way to get finance for its company while protecting its investors' deposits.
In a world that is becoming more decentralized, STO is a logical result of how new business models could work. In this sense, the STO, providing investors with greater security, is essential. It is also agreed by the leaders of various areas who are increasingly recognizing that ICO should be transformed into STOs. The offer of digital tokens in this form would be more resilient from scratch and would meet all regulatory criteria.
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