What Is A Security Token Offering (STO)?: A Complete Guide

Tokens that use blockchain to represent the value of an underlying asset such as company shares, real estate, or private equity are called security tokens (STOs). Entities usually issue STOs to represent stakes in an organization the same way securities such as stocks, bonds, and other equities would. Events that issue and distribute blockchain-based security tokens are called Security Token Offerings (STOs).

In a time when blockchain technology is widely used to improve the effectiveness of various industries, it is important to have a good understanding of security token offerings (STOs), especially when considering the possible risks associated with it. Let this article be your guide for understanding Security tokens and security token offerings in detail.

What is the Purpose of a Security Token Offering?

Security token offerings (STOs) are held to raise resources and funds similar to an initial public offering (IPO). The funds raised can be utilized for various purposes needed to expand or improve the business. In an STO, the investors receive security tokens equivalent to their investment, which represents ownership of the underlying asset. 

One of the major differences between IPOs and STOs is that STOs use blockchain technology, which enhances security and transparency that are much needed for inducing investor confidence, especially when it is a newly launched business. Additionally, it gives investors some added perks such as faster transactions, and lower fees. 

Advantages of Security Token Offering (STO)

While STOs are new to the industry, they have many advantages including:

1. Security: STOs are considered a more secure crowdfunding investment than an ICO (initial coin offering) because they are regulated by the financial authorities. So, the investors can have the peace of mind that their investment does represent the ownership of the underlying asset.
2. Fractionalization: One of the major advantages of security tokens is that they allow investors to own a portion of the underlying asset, making it more affordable and attractive to a bigger crowd.
3. Reduced fees: Transferring traditional assets such as stocks, and shares may need extensive paperwork and the help of a trusted third party, which can increase the transaction fee. Whereas, you can transfer security tokens peer-to-peer with no, or less trading fee.
4. Transparency: Transparency is a perk that comes with blockchain technology. Anyone can view the transaction details published on a public blockchain to reduce fraudulent activities to an extent.
5. Global Accessibility: Investors around the world can freely participate in STOs. However, some geo-locations can be banned due to local laws and regulations.
6. Higher Liquidity: STOs can make it easier for the entity to find investors because it is more accessible globally. 

Drawbacks of STOs

Security tokens are not devoid of drawbacks. Some of the most important limitations include: 

1. Regulatory requirements: STOs require extensive, time-consuming, and sometimes expensive legal procedures.
2. Investor limitations: While STOs are theoretically more accessible to a wider user base, some countries including the United States limit non-accredited users from owning security tokens.
3. Limitations due to novelty: Contrary to traditional forms of investments such as bonds and stocks, there is a level of skepticism towards tokenized assets, due to the novelty of the concept.
4. Cybersecurity risks: While blockchain technology is immutable and transparent, cyber threats have always been present in space. They employ techniques such as targeting vulnerabilities in smart contracts, carrying out phishing or socially engineered attacks, or even infecting the suspect’s device with viruses to retrieve private keys and seed phrases. And the decentralization of blockchain technology makes it harder to find the culprits behind the attack. 

Security Token Offering (STO) List 

Here is a list of some of the most popular STOs across industries: 

1. Student Accommodation in Nottingham

• Company name: Smartlands Platform Ltd.
• Minimum investment: 500 GBP
• Industry: Real estate

2. Resolute.Fund

• Company name: Resolute.Fund, Inc.
• Minimum investment: $1
• Industry: Real estate

3. Chaineum

• Company name: Chaineum
• Minimum investment: NA
• Industry: Investment banking platform

4. BTCNYEX

• Company name: BTCNYEX LLC
• Minimum investment: NA
• Industry: Financial platform

5. BlockState

• Company name: BlockState AG
• Minimum investment: €200
• Industry: Blockchain finance platform 

The above-mentioned STOs are gathered through publicly available data. We do not endorse or promote any of them in any manner. If you are interested in STOs, do your own research about their legitimacy and the trustworthiness of the platform.

Final Thoughts: is STO the Next Big Thing?

Security Token Offerings (STOs) are a more democratic alternative to other traditional investments such as stocks and securities. The adoption of cryptocurrencies and blockchain technology is getting more and more popular. Given that the current momentum of the cryptocurrency market as a whole continues, there is a chance of STOs becoming one of the next big things. However, it will largely depend upon favorable government regulations.