In the financial industry, security tokens have been rising in popularity because it can help automate processes like shareholder voting and dividend payments. Adding instructions to the token’s code is an excellent alternative to typical fundraising means because it reduces issuance and governance costs.
In this article, we’ll discuss how security tokens fare against crowd investing.
Cons of crowd investing
While crowd investing is an effective way for businesses to raise money across different platforms, there are some negatives that investors and companies must keep in mind.
1. High rates – The most evident of which are the high success and administrative fees that the investing platform charges after raising the capital. European crowd investing platforms charge an average of seven percent as a success fee. This rate is different from the administrative fee, which fluctuates depending on the platform. Typically, investors incur a ten percent administrative fee that will go to the company facilitating the crowd investing.
2. Risky investment – Equity investing is a highly volatile method that subjects investors to a high risk of losing all their money. Investments for start-up companies come in shares or debt securities that may lose all its value if the business fails. Stocks for initial investment can also dwindle once the company issues more shares in the next fundraising rounds.
3. Less power for investors – Collecting funds through crowd-investing raises several concerns. The shell company retains all shares after collecting the funds, meaning that investors do not have voting rights. Though investors can claim their income, they cannot help in steering the company’s direction or control more shares.
4. No secondary market – In crowd investing, investors cannot sell their assets because the unlisted company does not participate in the stock market. This situation leaves buyers with no other avenues to find prospective buyers.
How security tokens can help
Here’s how security tokens offer an alternative to the downsides of crowd investing.
1. Provides a secondary market – This financial ecosystem combines blockchain technology and traditional markets to give investors access to secondary markets. Security tokens offer liquidity to allow investors to sell their assets at any time. They also only require a minimal fee, which reduces investment expenses as a result.
2. Investors own the assets – No third parties can collect the investment. This transparent option provides the necessary documents that investors want to see before placing their money. Also, security tokens feature wallets that contain investment money and allow investors to share their thoughts on impending decisions by voting from their online accounts wherever they are.
3. Connect with more investors – Security tokens are an excellent platform to reach a wider pool of investors who are willing to invest in technology-based companies for projects.
Find security token investments easily
STO Filter aims to educate more people about security token offerings through articles about the latest news and videos on how to engage in this type of investment. This new form of digital asset ownership is similar to investing in a company but through purchasing cryptocurrency. This independent STO database also lists several digital securities listings from various industries. Visit the STO Filter website now to learn how you can invest through digital security tokens.
If you’re looking to learn more about STOs, get in with STO Filter to see how we can help!
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