Security token offerings began to gain popularity in 2017, gradually replacing ICOs. The number of STOs increased significantly in 2018 and is growing steadily every year. Over $1,500,000,000 has been raised in all time. Importantly, the number of STOs that are successful is also growing. However, many companies are still skeptical about this fundraising tool and are in no hurry to open up new prospects for themselves.
Security token offering explained
Initially, ICO (Initial Coin Offering) was used to receive investments in the cryptocurrency world. However, this method had a number of drawbacks, and in many respects, it did not live up to the expectations of both the crypto community and regulators. All parties had to look for alternative ways. One of them was the Security token offering (STO) procedure.
STO is a combination of legal and technical aspects, due to which the tokenization of assets of legal entities is carried out. Thanks to tokenization, securities are digitized and turned into a token called a security token. Such digital assets have a number of features, including:
- Regulation. Security tokens are regulated like securities. The general rule is that if the value of a token comes from a particular company or external asset, it will be given the status of a security token. The Howey test is used to determine the status.
- The issue is carried out by a private company. While the shares of public companies are listed on the stock exchange, the securities of private companies are not traded there. Previously, such organizations could place their securities only after an IPO, but for this, it was necessary to become a public company that required time and money. STO allows you to make securities tradable much faster and easier.
Asset tokenization is a technology that allows us to change the world of securities for the better. STO has a number of advantages both for markets in general and for specific companies.
