Why is choosing a STO (Security Token Offering) a Smart Decision for Investors and Businesses?
If you are an investment enthusiast, you would surely agree that ICOs (Initial Coin Offering) was a very popular way of fundraising in the crypto community back in 2017.
The blockchain companies having revolutionary products or solutions have found unique & innovative way to raise capital from investors in the market without a lot of regulations.
However, as it turned out, the majority of the ICOs were fraudulent. By the end of 2018, the increasing fraud incidents, regulatory concerns and lack of a minimum viable product (MVP) have resulted in a steep downfall of ICOs usage.
As reported on the Fabric Ventures report, 58% of all the ICOs in 2018 failed.
Enter the STO
The heavy dumping of ICOs by regulators and investors has opened the door for a new type of token offering or fundraising method called security token offering (STO), which became an instant hit, owing to its increased regulatory compliance and investment protection.
A security token, in its simplest form, is a digital representation of a tradable financial asset. In other words, it is a cryptographic token that allows the investors to share profits or pay dividends or interest on the underlying asset, such as bonds, stocks, real estate, etc.
The security token is also heavily regulated in many countries like the US, Malta, Switzerland, etc.
The investors joining STOs can secure their investments and avoid any fraud cases. STOs are also a much more practical concept for regulators around the globe as they support
Client (KYC)
Anti-money-laundering (AML)
Other compliance measures
Although, the future landscape of STOs will heavily depend upon the regulatory environment around it, which now seems opaque and unclear across many jurisdictions.
STOs on the verge of Taking Centre Stage
There are promising signs of having more clear regulations around the digital currencies. Countries like Singapore, Taiwan, Malta, Switzerland, and Japan are making efforts to make a clear preliminary regulatory framework to make digital currencies more mainstream.
As a result, more and more companies are now using STO as their preferred way of fundraising. According to the ICOrating data, STOs have captured more than $700 Million.
Why Choosing STO over ICO is a smart Decision for Investors/Fundraising Companies?
There are ample benefits of STO for both investors and fundraising companies.
Low Cost
In traditional finance & investments, the presence of a middleman decreases the profitability of investors. STOs do not involve any middleman, so it is a cost-effective solution for investors.
Smart Contracts
Security tokens utilize smart contract facility where specific rights can be easily embedded in the architecture of the token, such as dividends, voting rights, etc. This not only improves security and cost-effectiveness but also adds a new element of flexibility.
High Transparency & 24/7 Trading environment
By conducting STO, businesses can increase token liquidity. Security tokens are faster to trade, regulated, and offers a 24X7 trading environment for global markets.
Faster Execution
Each transaction goes through middlemen, such as banks in case of traditional investments, including securities, which increases the overall time of transaction processing. Security tokens, on the other hand, offer faster execution and lower processing fee.
Credibility
ICOs have failed in the first place due to lack of accountability and compliance. Unlike utility tokens, security tokens are regulated. This minimizes the possibility of fraudulent activities. Security tokens can be customized for KYC, dividends, transaction limit, and more.