The Emerging Trend of Security Token Offerings
One of the advanced emerging technologies is blockchain. It supports crypto assets like Bitcoin, Ether, utility tokens, and security tokens. In the financial service marketplace, crypto-assets open a world of opportunities. Most of the people out there are familiar with utility tokens, but the concept of security tokens is relatively new.
A security token extracts its value from an external and tradable asset. The trend of security token offering development is emerging rapidly. To have a clear understanding, follow the article.
What is STO?
For the initiation of the projects, fundraising serves to be a crucial factor for the startup. In the past couple of years, several mechanisms of fundraising have assisted the startup. Several startups have implemented ICO (Initial Coin Offering) to fulfill their purpose of fundraising. But, currently, STO (Security Token Offering) has replaced ICO.
We need to understand that each fundraising version has its advantages and disadvantages. Those versions are used by competitors to bring out a necessary featureful device. The latest type of fundraising that is used by startups is STO. The other forms of fundraising offered by security token offering development companies are utility tokens given to the investors.
Differences between IPO, ICO, and STO?
IPOs are the common way for companies to opt for fundraising. Having an IPO (Initial Public Offerings), the company can sell shares with corporate rights like voting or dividend. Such shares are highly regulated securities.
ICO emerged in 2017. The startups or companies that deal with projects associated with blockchain make use of ICO. In exchange for the capital, it provides digital value to the investors. In the beginning, most of the investors were opting for ICOs to invest. But with time, the number of digital frauds increased over here.
This made ICOs ineffective, and STO solutions took over. The popular reason behind this is that STOs were able to provide security to their investors. Keep in mind that ICOs did not fail initially, as, at that time, the tokens they provided to the investors were based on the emerging technology of blockchain. The utility tokens help the investors to access any platform of products.
Because of their high liquidity, the investors of ICO got a new way to make use of the tokens. The token could be sold for higher charges. However, the companies could not finish with their products even after gathering money from the investors. Thus, it eventually led to the loss for the investors, and thus, ICOs failed.
Insight about STO:
An investor always ensures that there should be no loss that he or she needs to face during the process. ICO did not facilitate security, and that is why these security tokens were launched to ensure a secure environment. Having real value, security tokens are the tradable assets’ digital representation.
While trading money from the companies the investors invest in, they will receive security tokens. The investment can be made peacefully, and one does not need to be worried about ROI (Return on Investment), as it is well-recognized by the law. The investment remains transparent because of the tokenization of securities.
Just like an ICO, an STO development company builds a smart contract on a network like Ethereum. To be more particular, what a usual contractor can perform, can be performed with a smart contract. There is no need for a middleman. It is fully digital.
Advantages of Security Token Offering:
We have understood that it helps in fundraising for startups and companies. But, apart from these are some more benefits that make it favorable for the companies out there. The popular benefits are as follows:
- The automated system eliminates frauds: Human intervention is eliminated because most of the transactions are performed on an automatic system. This means that there are little or no possibilities of extra charges or any fraud in the case of STOs. It not only improves the investors’ profitability but also increases their security.
2. Customization: Cryptocurrency can be easily customized. Any functionalities can be put, like dividends and transaction limits. The flexibility of digital assets not just makes it profitable but offers you customizable features as well.
3. No involvement of extra costs: In STOs, there is no existence of any middleman. Thus, one will never have to come across any additional costs, like a transaction fee. It increases profitability and makes the investment process less complicated for the investors.
4. One will not ever lose tokens: When a bitcoin is sent to avoid address, there is the involvement of risk up to a particular level. But the STOs can be programmed properly by the programs so that they can be recovered if stolen or lost. The only thing an owner needs to do is pass the procedures of stringent verification to acquire the tokens.
The popular STOs:
Among all the popular STOs, Nexo is comparatively more popular. It provides loans instantly with competitive rates. During the time of token sale, it raised 52.5$M successfully. Most of the shareholders of Nexo are also the most of Credissimo’s shareholders. The credibility of Nexo goes to the fintech group that is operating for several years.
Another successful STO is tZERO, which became the US’ first regulated security token exchange. At the time of token sale, they had successfully raised 134$M. CEO of Overstock was the founder of the platform. Overstock gives much credibility to the project.
In Luneburg, Germany, recently, a real estate object was tokenized. The platform was sold successfully for 1.5$M.
The future scope of the STOs:
Experts are expecting that security token offering services will enable many companies to improve their business’s liquidity by converting their valuable elements into an asset, which is more tradable. It will further leverage the company’s profit with newer investments.
To increase the fundraising capability, some startups are going to use the hi-tech blockchain feature of the STOs. They will do it by attracting global investors to make investments in their startups or companies.
Compared to the ICOs’ security tokens, the STOs are more reliable and secured. This is the primary reason why most companies and investors are looking to turn their assets into tokens in the future. Moreover, STOs are now considered to be one of the most demanding investment mechanisms. We can conclude that STO will keep expanding in the upcoming future and tempt the companies and investors more towards STO.