November 16, 2018
What is a Security Token Offering (STO)?
What is a Security Token Offering (STO)?
Initial Coin offerings (ICOs) were the financial superstars of 2017. Coin offerings generated a whopping US$6 billion in worldwide startup capital throughout 2017. However, is estimated 80% of them were scams. Enter 2018, and the STO era starts, providing far more protection to the blockchain investor and paving the way for mass adoption of the digital economy.
ICO + Juridical Compliance = STO
To put it simply, a security is an economic instrument representing an actual asset. Stocks, bonds and managed property trusts are examples of securities. Traditionally, when a security is purchased, the operation is done the old fashioned way, on paper. A security token performs equally in functionality, the difference is that it confirms ownership through blockchain transactions. Security tokens offer a number of financial rights to investors such as equity, profit dividends, income shares, vote casting, and access to many others investment mechanisms.
What do investors need to know regarding security tokens?
Security tokens aren’t cryptocurrencies or tokens related to unregulated ICOs.
Security tokens are digitized conventional securities. Should you already invest in securities (stocks, bonds, real estate, Private Equity, VC, etc.), then you might be accustomed to what holding a security means. For example, a security token would transform stock certificates into a digital version of them. Tradable 24/7 and with no geographic frontiers.
Compliance is programmed into the token.
Security tokens are made out of many smart contracts. A smart contract is a simple program designed to execute once a specified criterion is automatically satisfied. Smart contracts also determine how the token can be purchased, traded and sold in a compliant fashion, and since they are blockchain based, the transactions are immutable, traceable, and fully transparent. The whole process is known as whitelisting, in a way that makes the ownership of the Security Token more secure than other kinds of tokens.
The global liquidity is probably the security tokens’ most valuable trait. Security tokens have the capacity to symbolize fractional ownership of an asset and can be traded on global security token exchanges, two things that are practically impossible for conventional securities. The onboarding process and the easier way to acquire foreign investors, make the security tokens the holy grail of the traditional financial market.
They’re a decisive feature-rich replacement for traditional securities.
Within the traditional securities markets, deal execution is, for the most part, annihilated due to the number of middlemen involved. Trading is restricted to a tiny number of players. Traditional securities are managed by ways of a combo of spreadsheets, paper certificates, lawyers, custodians, accountants and transfer retailers which cost a lot of time and money, not mentioning the probability of human error. However, because security tokens are digitized, much of these processes become unnecessary, making the security token more accurate and effective.
All operations related to a security token (issuance, trading, purchasing, selling, and so on) are listed on the blockchain, which is viewed as a “trustless” procedure since blockchains are immutable and public in nature. There is no need for trust between parties when performing a transaction via security tokens. Mathematics takes care of that.
What makes an STO so beneficial for businesses?
- Global capital access
- New methods to market products and services
- Better conditions
- Low entry costs for investors
- Costs hundreds of times cheaper for the issuers
- Possibilities that go beyond the scope of the traditional security
We deliver solutions from the very first steps of an STO, all the way to providing the infrastructure for secondary market trades. We are building a global network for security tokens exchanges, with the most advanced trading technology and the cheaper cost of implementation of a brand new kind of exchange that can be set up in less than a day.
Services for token sellers:
- We provide a platform for token issuance, distribution, and management.
- Token buyer whitelisting (KYC/AML).
- Listing to only whitelisted users (depending upon citizenship and location of residence).
Services for the token buyer:
- Buying access to primary Security Token Offerings.
- Token trading between whitelisted users.
- Peer to peer transfers (Smart contracts dictates that only whitelisted users can receive tokens).
The same way email replaced snail mail, we expect the replacement of traditional securities for security tokens because of the facilities provided when it comes to trade, and asset-backed securities management. We have already witnessed the tokenization of capital, firms, and property. With new up and coming online security token exchanges and marketplaces, as well as a vast variety of tokens to be traded with compliance to regulations on a global scale, the possibilities for investors are unlike anything that has ever existed. Investors will not be investing in “security tokens,” they’ll be investing in a category of asset never available before.