What is a Security Token Offering (STO)?
STOs are similar to ICOs only that they are tied to real securities which can be used to represent token assets. In many cases the tokens represent real equity inform of digital shares belonging to a specific company. Therefore a Security Token Offering can be described as an Initial Coin Offering selling security. In addition for a security token to become an STO, it must pass the Know Your Customer and Anti-Money Laundering checks. Before the emergence of STOs, ICOs were very popular. However, most of the ICOs were not compliant with regulations. In additions because of the lack of securities, only 20% of ICOs became successful.
People invest through ICOs in order to receive cash flows, voting rights which are tied to the securities and even dividends in the future. The difference between ICO’s and STOs is that STOs are backed by assets, cash flows or profits, therefore, having an intrinsic value. In addition, STOs are fully compliant with all the regulatory requirements giving investors’ confidence to participate. Some of the best features about STOs is that cases of money laundering are minimized therefore reducing fraud. These security tokens are already replacing ICOs and they are becoming the phase of many startups.
Benefits of STOs
- Increased liquidity since traders are not tied to the normal trading hours
- Reduced costs
- Automatic compliance