Home > Courses > Cryptocurrency Investing > Analysis of Cryptocurrency For Investment > Security Token Offering (STO) Guide

Security Token Offering (STO) Guide

Share:

Unlike ICOs where investors are handed the equivalent number of coins as their investment, an STO represents an investment into an underlying asset such as bonds, stocks, and real estate investment trusts (REIT).

Initial coin offerings (ICOs) have dominated the crypto headlines since the crowdfunding boom of 2017 and 2018. ICO’s have dominated with good reason. An ICO was the standard way of raising capital for crypto startups who were raking in millions by the day. With the passage of time and the crypto market's maturity, more avenues of crypto crowdfunding have come up. One of these avenues is through Security token offerings (STOs).


What are STOs?


To properly unpack what an STO is, it will mean looking into the word security. Security in financial terms is a tradeable asset that holds monetary value. In our case, security is an investment product backed by a physical item of value, such as land or gold.

A Security token, therefore, means the ownership of information of the investment product, which is recorded on a blockchain. The best way to make this clear is to compare it to traditional stocks. Details of ownership of traditional stock are recorded in documents, while details of ownership for STOs are recorded on Blockchains. STOs are somewhat a blend between traditional initial public offerings (IPOs) and more recent Initial coin offerings (ICOs) because they have elements of both.

STOs are similar to ICOs but with different coin characteristics. STOs are backed by physical assets, unlike ICOs, and also fall in line with regulatory governance. ICOs, on the other hand, go around legal frameworks and do not obey strict regulatory structures.


What are the benefits of STO?


What are the benefits of STO?

STOs are not only beneficial to investors who get to buy tokens backed by physical assets, but they are also quite useful to the issuers themselves since they shut up all the cynics who try to claim that they lack intrinsic economic value.

Some of the key benefits of STOs are:

1. They boost credibility

STOs restore investor confidence since they follow regulations and regulatory structures, unlike ICOS. Despite the popularity of ICOs, many of them have ended up being straight scams or failed to live up to expectations, leaving investors with a bunch of useless token holdings.

2. They are limitless

Borders or regulatory structures do not limit them.

3. They are cost-effective

Unlike the traditional securities we are accustomed to that are slow and quite costly, STOs facilitate services at much lower rates.

4. Create a larger pool of investors

Unlike the traditional securities that are only accessible to those within a particular locality, STOs are accessible to anyone with an internet connection.

5. Provide more liquidity

STOs provide more liquidity since they are traded on more specialized exchanges to provide efficiency.

STOs are considered hybrids to ICOs because of the above benefits and their ability to settle the flaws of ICOs while also improving on traditional securities.


How can you participate in STO?


STOs are the in thing since investors believe that they present a more stable and regulated future. Though STOs can be accessed easily on the internet, the caveat is you have to be an accredited investor. An accredited investor in the US means anyone with a million dollars or an annual salary of $200,000 in the past 2 years. This means that only an exclusive club can access the much-coveted STOs since very few people can meet the financial requirements.

While STOs look like only a preserve for the elite, there are ways that people who do not meet the financial threshold required can get involved. If you live outside the United States, you can connect with other interested people and pool resources to participate since the accredited investor rule is only American.


What are some of the top STO platforms?


Some of the platforms that host STOs include:

1. Polymath

This platform aims to aid the integration between the blockchain and conventional securities while also taking users through the entire process of tokenization.

2. Securitize

This platform comes to the aid of startups that seek to offer end to end services to companies that seek to innovate and put out security tokens. The platform has created quite the name for its flexible and efficient nature, securing partnerships with Sharespost and Blocktrade. The platform is touted as the best of its kind in the world.

3. Securrency

This is a similarly popular STO exchange platform created just 4 years ago. The platform was born out of a need to secure investor STOs. On the platform, users can transfer assets no matter the form they are in.

4. Swarm

This platform allows users to turn various assets into tokens, including farm produce and fiat currency. The exchange’s protocols have striking similarities to those of ERC20. The exchange now has its eyes on integrating AI into its exchange.


What are the top-performing STOs out there?


1. Blockchain capital

This token has done wonders since being launched, raising $10 million within just a few hours. Its current net asset value stands at $2.61, which represents a 161% RO1.

2. SpiceVC 

SpiceVC is an SEC-compliant token that managed to raise $15 million. Its Net asset value (NAV) currently stands at $1.37, representing a 37% increase since its launch.

3. Nexo

Nexo happens to be the first crypto-backed loan issuer. Users can use the platform to access loans in Fiat currency. Nexo may have lost value over time, but it has still done better than its peers who have lost more value since its inception. The exchange benefited greatly from its quality team of creators and the favorable Swiss environment it was hatched in; since Switzerland is well known for being a very progressive and crypto-friendly country compared to most others.


Asif Rahman



Comments

Scroll to top