Shefali Deshwali


Are Security Token Offerings (STOs) the Actual Solution to All ICO Problems?

Investing in popular trends is often the choice of many investors as they keep their eyes open for all kinds of opportunities. While some of these choices might turn out to be risky and less profitable, others could also potentially lead to humungous returns if the bets are placed right.

If you are the kind of person who constantly looks out for trending investment opportunities in the crypto world, there’s a high probability of you thinking about investing in STOs. If that isn’t the case, I’d like you to read further and develop an understanding of this new buzzword in the crypto world. Taking the next step is purely your choice.

What is an STO Really?

STO (Security Token Offering) is the new big trend in the crypto world that is attracting eyeballs these days. Some even say that they’re a better replacement for the ICOs. It is also being stated that security tokens would take over the market in the coming years.

In the simplest of the form, Security Tokens are the intersection of blockchain and traditional assets. They are tokens that hold some true value in the real world.

For example, consider shares of a company that you wish to purchase. When you buy a share online, you pay an amount for it and in return, you own the share and are free to trade it on an exchange. Upon purchasing the share, the receipt of this transaction is provided to you.

Buying a security token is similar to this with an exception of replacing the shares with security tokens. Meaning that the shares of a given company can be represented in the form of tokens and then instead of buying the shares, you can buy these tokens from the company. Each token will have a specific value attached to it similar to a share.

Security token offerings can be considered as securities. Securities can be anything that you invest into with the aim of earning profits in return. Some examples of securities are shares, real-estate properties, bonds etc. By providing STOs, companies ensure that these tokens represent shares.

STOs are becoming popular these days largely because of the attention and acceptance that they are gaining from the governments. Moreover, these tokens also offer better flexibility in terms of gaining ownership and performing transactions rather than traditional paper-based contracts while eliminating the need of any middlemen in the process.

Why STOs?

ICOs (Initial Coin Offerings) gained enough limelight in the previous year. Reason being the availability of an easy option of raising money without regulations, guidelines or any kind of laws. It’s not that ICOs were a bad thing. In fact, they were the exact opposite of that. Through ICOs many amazing projects such as Ethereum and NEO accelerated their way to success in no time.

However, since many exploiters entered the markets, the value of ICOs decreased rapidly. Scams related to new projects came into existence even more quickly as many people did a great job in preparing alluring white papers and raised millions of dollars without any guarantee of returning the money to their investors. Despite precautions against Ponzi schemes and scams, many people invested their money in projects that never even started.

With this trend, ICOs are now being banned from certain parts of the world and STOs are gaining the trust of investors as regulators globally are also warming up to them. STOs are being considered as better options in the ICO saturated crypto world.

Benefits Provided by STOs

There are significant benefits of having a security token over the traditional systems. The four major advantages are as following:

Advantages of Security Token Offering
  1. Better Liquidity Options- In the near future, trading via security tokens will be conducted on licensed exchange platforms. Many high-end products could be listed in the form of security tokens for people to buy and sell. These platforms will have abundant buyers and sellers on board as they are licensed exchanges. Since a licensed exchange platform can offer an easier process for trading any product, investors will be able to liquidate security tokens against any product and thus, offering better liquidity for any asset.
  2. Reduced Costs Against IPOs- Out of all the companies in the world, a very small percentage of companies are public companies as making a company public requires a lot of money in the first place. Due to this, people are able to invest in the shares of only a very few companies. With STOs put to work in the right way, the costs of making a company public can be reduced to a great extent as the middlemen are totally eliminated from the process thus making it much faster and affordable. When businesses decide to have STOs in the future in place of IPOs, common people can easily invest in shares of different public companies.
  3. Segmented Ownership- Assets of high-prices or shares of high-valued companies are not something that a common man can purchase. This is mainly because their prices are considerably higher. Security token offerings or STOs can be of huge benefit in such cases as they can solve such problems simply by offering tokens against any costly product. The cost of any such product can be divided in the form of tokens and normal people like you can me can purchase some tokens for the product rather than having to purchase the overall product.

The Future Ahead

While ICOs are a good option to help amazing business ideas to work with fast funding; they still require a lot more than just a whitepaper to convince today’s investors. The best solution in such cases is the implementation of STOs as they are better fraud-proof, regulated and can expect a better future, unlike ICOs. Moreover, from an investors point of view, an STO can provide higher security and eliminate scams while saving them from Ponzi schemes and allowing them to invest money in secured tokens.

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