Crowdfunding used to be considered the best method for raising capital for businesses. Then ICOs (Initial Coin Offerings) were introduced as a hybrid form of crowdfunding, but due to the lack of regulatory terms, many scams rose up and investors lost their money.
ICOs allowed trading both security and utility tokens, but the system had many flaws that made it impossible for investors to trust this model. For equity trading to become much easier, faster, and more reliable, a more trusted way of investing in security tokens was necessary.
Security Tokens: Defined
Security Tokens are similar to Cryptocurrencies due to their tradable and secure nature, but these tokens have more regulatory protection that aligns with the traditional.
Some people might confuse Security Tokens with Tokenized Securities because both have similar nature, but Tokenized Securities are straightforward, and they are traded on Blockchain with a simplified, transparent and secured model. Moreover, Security Tokens have some distinct features that depend on the specific design of each token. These Security Tokens also have an underlying value like any other assets, and they are less speculative and volatile.
Unlike other digital assets such as tokenized securities, Security Tokens are programmable, making them comparatively special.
Why Security Tokens?
So, what’s the purpose of these Security Tokens when one can easily own the underlying asset or equity? Security tokens are simply more reliable due to transparency, programmability, and trustability factors that make Security Tokens more special than stocks or other forms of the asset. A programmed token can be more useful as it can possibly serve some purpose.
Crypto assets or Security Tokens can be traded 24/7 on the marketplaces. Moreover, investors from all across the globe can invest their capital in these tokens to become fractional owners of the underlying assets. Also, investors trade in these tokens without an intermediary, which saves a lot of fees.
Above all, the transactions made on the Blockchain network are entirely transparent and trackable. This keeps all the authenticity of all the transactions happening without any chance of scam. Other security assets cannot match this level of transparency that Blockchain provides in a fully automated system without any middleman.
Security Token Offerings: The Relation
Initially, the company used ICOs for raising capital from investors, which is good, but it also has its downsides and flaws. The Security Token Offerings (STOs) concept was introduced for Blockchain-based crowdfunding that also ensures regulatory oversight.
Companies are now adopting STOs due to their more secure regulatory infrastructure that minimizes the chances of any scams. The programmable tokens can easily be traded on Blockchain by following all the regulations based upon the laws of any country.
The major difference between STOs and other types of crowdfunding is that STO involves all the regulations set by the countries, which makes it more secure without minimizing its Blockchain benefits.
Due to all these regulatory restrictions, only a few companies can offer their Security Tokens that entirely follow all the regulations set by the country. If we see on the brighter side, it ensures an investor’s safety due to the regulations under which STOs operate. It almost eliminates the risk of any fraud or scam on Security Tokens.
The ICOs were misused by the fake companies who scammed thousands of investors and took their money, but STOs cover all the negatives of this previous model. Companies who follow all the regulations will find this new way of raising investments much interesting while staying within the regulatory boundaries.
Bottom Line: What to Expect?
Without any doubt, STO is a revolutionary way of trading Security Tokens while staying within the legal compliance boundaries. Many big companies are yet to adopt STOs, but it will eventually bring new investors from many countries to trade in this market.
Above all, the programmable nature of the Security Tokens will bring many new and exciting opportunities for the investors, along with the transparency and trackability of their investments.
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