To understand what a security token offering is, you must first understand what an initial coin offering or ICO is. ICO is a new type of funding in which the creators of projects allow members of the public to support their project by buying tokens.
Project creators offer a specific amount of these tokens during an initial coin offering. Then investors who are interested in the project can buy as many coins as they would like. Following the release of the ICO, the coins typically trade on public exchanges, just like stocks.
In fact, ICOs are very similar to IPOs, or initial public offerings for companies who are offering stocks to the public. However, ICO coins are not securities and they do not represent ownership of anything tangible related to the company or the project.
Security Token Offerings
Security token offerings, or STOs, are very similar to ICOs. However, security token offerings allow investors to purchase security tokens, which are tokens that actually represent ownership of something tangible related to the company, such as dividends, profits, or assets.
Because security tokens qualify as securities, they are subject to the same rules and regulations that other securities are subject to. So, any company who offers security tokens and fails to comply with securities laws can be subject to penalties from the SEC.
Essentially, security token offerings are a way for companies to use cryptocurrencies to raise funds while giving investors access to more value than traditional ICOs do.
The Future of Blockchain Funding?
There is currently a lot of buzz around security token offerings, and they are being touted as the next big thing in the blockchain sector. This is because they are seen as a potential solution to some of the major problems of traditional ICOs.
Over the years, ICOs have generated billions of dollars in funding for a wide variety of amazing projects. However, there have also been many scams which have resulted in investors losing large sums of money.
Because security tokens are tied to tangible parts of a company, and because they are much more heavily regulated than ICOs, they are viewed as being a much more secure investment than ICOs by many people.
If the security token trend continues to grow, then it could see a wave of institutional and traditional money flow into the blockchain space. This is because institutional and traditional investors often prefer to invest in safer assets.
Also, security tokens are much more similar to assets that they are used to investing in, such as stocks. So, security token offerings could completely change the game for blockchain-based funding.
This will be especially true if security token offerings prove to be a viable alternative to IPOs. Many would argue that they will since they are typically faster and cheaper for companies to set up. This is because they eliminate a lot of the work that is done by expensive banks and lawyers to set up IPOs.
In the next few years, security token offerings could completely alter the blockchain industry and change the way that many companies do there funding. However, only time will tell when it comes to knowing exactly to what extent STOs dominate crypto-based funding.