STO Security Token Offering-A Complete Guide

With the advent of 2019, there is a lot of buzz of STO security token offering in the market of Initial Coin Offering.  According to the research, the market of STO will surpass the staggering figure of $ 10 trillion by 2020. So definitely you are curious to know, what actually STO is, and why it is so popular. This article will help you to understand STO in a better manner. 

What is security token offering STO?

Before diving into STO, first of all it is mandatory to understand security in finance. Financial assets like bond, debenture, notes, opinions, shares (stock) and warrants are known as security. Share or stock allows you to own a part in a company without taking actual possession of it.   Government and company issue stock IPO, bonds, and debenture to raise the funds from the capital market from various investors. And investors get their money in the form of dividends or interest rates or share of company’s profit.  And when these things are done through cryptographic token then it is known as “Security Token.”  So STO security token offering can be defined as, cryptographic token that pays dividend, share profit and interest to owner, and also allow them to reinvest into other security tokens.   

STO security token offering is like ICO, but unlike ICO, STOs are powered by security and backed by real time assets.  In more simple words, in STO all investors must pass KYC and AML checks and they have to follow the regulatory standards of investors based on the rules of their country. STOs are developed with advanced security, so it is considered more authentic than ICO. For example, if any STO token is backed by Facebook, value of that token will fluctuate according to the market value of Facebook.

The types of security tokens:


  • Right security token

Right security token provides certain right to token holder within the platform of the token. With this token, token holder will have right to vote and choose good project.   

  • Value exchange security token

This token allows users to trade real assets within the confines of the platform.  This can help to govern rewards when certain tasks have been completed.

  • Fees security token:

Fee security token allows you to participate in STO and you can trade within the system itself. 

  • Function security token

With function security token, owner can enhance the user-experience of people who use that particular system.   

  • Currency security token

According to the value of the token, users can use this token as currency for exchange inside as well as outside of the platform.

 4 important layers of security token offering:


 1. Blockchain protocol

Security tokens are based on the Blockchain protocol and Ethereum is the most popular in the STO eco-system. However with the passage of time more protocol entering the space.         

 2. Smart Contract

Smart Contract is the programming language by the Blockchain protocol and it is supposed to have a utility and therefor a value that’s why it is known as utility tokens. 

 3. Issuance platform

Issuance platform create and distribute the utility token, responsible for having compliant, regulated smart contracts for the token issuance.

 4. Exchanges

It is the most important, facilitates trading and provides the liquidity in the digital asset eco-system. Without them, there is no worth of token except if someone else is ready to pay for them.  


The difference between STO and ICO:


  • STOs are secure and it is bound by certain legal framework internationally thereby no chance of scam. On the other hand ICOs are unsecure and unregulated, thereby investing in ICO is always risky and chance of scam.
  • STOs are backed by the real assets that have an intrinsic monetary value; on the other side ICOs are not backed by the real asset therefor do not have an intrinsic monetary value. 
  • An ICO becomes popular due to the technology of the platform and the appreciation of the coin themselves, whereas STOs becomes popular due to the value through the operation and the climate of the business. 
  • Due to the regulation surrounding securities, STOs are limited in regard to the breath of their target market. On the other side due to the unregulated surrounding, there is no restriction on ICOs.
  • Where ICOs are easy to set up, the same STOs are not. To launch STO you have to deal with lawyer, advisors, regulators, and technical platform for the launch of your token for trading. Apart from that STOs are meticulously tested by the team of experts before launch.  
The positives of STO security token offering:

  •  STO will bring more compliance in the crypto market and it will give regulators the opportunity to apply more compliance and control.
  • Since STOs are bound with legal structure so there is no chance of scam, which will influence new investors to enter into the market. 
  • STO will allow people to buy smaller stakes; with minimum amount people can buy fractional part of the token.  This will bring more liquidity in the market. 
  • Simplifying accounting and auditing processes, automating KYC and AML process, automating dividend payments and lower issuance fee, STO will bring efficiency and scalability in the crypto market.     
  • Due to the immutability character of the Blockchain no one can tamper the data. This character becomes the perfect infrastructure to document ownership of securities in a transparent way.  
The present market of STO security token offering:

STOs are swiftly replacing ICOs. Year 2018 was quite good for STO and some major sectors like investment and trading, technology, financial services, real estate, Health care and Fintech are entering in the market of STO. With market share of 20% of total STOs investment and trading sector leading the market. With the advent of 2019, there are over 60% STOs are entering into the market.  Besides, companies who are raising the funds for their projects realizing that investors and funds are more inclined toward security token instead of utility tokens, so arguably STO will rule in crypto market in 2019 and beyond. 

Conclusion:

The best thing about security token offering is that it is legal, regulated, and backed by the real time assets. Besides, STO is checked meticulously before launching which eliminates the chance of scam and fraud. Unlike ICO, the market of STO will not affected by the price of Bitcoin, rather the operation of the business and cash flow will decide the market value of any STO. Now STO is at initial stage and with the passage of time more STO will enter into the crypto market and in future it will rule over the ICOs.      


Soumen

Hi, I am Soumen, freelancer content writer and I love to write on crypto industry. I am passionate researcher love to  explore new thing and love to simplify complicated things. When I do not write i watch soccer and play computer game.

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