Are Security Tokens the Future of Fundraising?
As the trends of cryptocurrency and blockchain are rising and more companies favoring digital currencies over the traditional ones, it's safe to say that we can see more institutions adopting " security token " as a default option for fundraising in the near future. In other words, more and more companies will be seen issuing security tokens, instead of regular shares, when looking to raise funds from potential investors.
But, this won't be the first time that a company is using tokens or digital assets for fundraising. We all have seen the rise and fall of ICOs (Initial coin offerings). Before ICOs failed or were declared fake, they became quite successful, even for a little while. This is because investors actually loved the concept of getting access to a new kind of digital platform, service or app in exchange for their investments. In a way, they were exchanging money for digital assets.
The problem with ICOs was that most of them were issuing utility tokens, which were unregulated and had little transparency. That, combined with the ICOs' failure to deliver, resulted in their ultimate demise. But, that was a good thing, because it was the ICOs' failure that gave birth to the need for Security Tokens.
What's a Security Token?
Security tokens are digital tokens or objects that represent the value of a linked physical asset. For instance, a token can be created to represent the value of real estate properties and then sold to investors willing to contribute to the real estate or any other project of the company. It will essentially give the holder the ownership of the underlying real asset.
Security tokens are better than utility tokens as they contain real value and not just the promise of value. They are now widely replacing equities as a preferred way of fundraising.
Why Security Tokens are ideal for funding
Security tokens seem like the next obvious thing after the traditional fundraising methods have exhausted their use. They are a natural evolution from equity funding and are definitely better in terms of security, speed, convenience and communication. As the regulatory frameworks surrounding the tokens become clearer, even more investors will accept tokens as the default option for fundraising.
Security tokens are securities created on the blockchain. Security tokens are essentially codes that contain the agreement details and are designed to be highly secure. Since they are digital, they are easy to track, manage, and nearly impossible to counterfeit. Also, the transaction cost involving Security Tokens is lower compared to equities. They can be sold in fractions, of any small or large amount. Also, they have far greater liquidity and flexibility.
##How it works - How to use Security Tokens for fundraising
Businesses looking to raise funds for a new/existing project can convert their real-world assets like real estate, gold, or ownership in the company into digital securities and issue them to investors in exchange for their money. The phenomenon is called Security Token Offering (STO), where instead of equities or shares, the company sells its security tokens in exchange for investors' money.
Nowadays, there are available ready-to-use platforms, such as the DCI Ecosystem, that allow small businesses, startups & individuals to raise funds to meet their business capital needs by issuing their own Security Tokens (Smart Contract) and selling them through STO. Any existing or new business can use the DCI ecosystem to create Security Tokens that can be either Equity Finance or Loan/Bonds.
The STO Development and launch process by the DCI Ecosystem has the following stages:
Stage 1: Businesses looking to raise funds can register their request on the DCI Ecosystem.
Stage 2: The DCI Ecosystem team will analyse the financial feasibility and scope of the request.
Stage 3: If approved, the team will start the documentation process for creating the Security Token and Smart Contract.
Stage 4: Once the approval from concerned authorities is received, the real-world asset is transformed into an equivalent tokenized security (security token), which is then made available for purchase on the DCI Ecosystem.
Stage 5: Once launched, the security token is listed on exchanges.
To know more, or to request security tokenization with the DCI Ecosystem, visit https://dciecosystem.com/
Originally published at https://dciecosystem.com on October 27, 2020.