Initial coin offerings (ICOs) are phasing out and security token offerings (STOs) are gaining prominence. During the cryptocurrency bubble of 2017, ICOs generated more than $20 billion throughout the world from Main Street investors. However, they came under scrutiny by the SEC by failing to meet securities regulations. In the end, the SEC cracked down on noncompliant ICOs.
STOs, on the other hand, are compliant with SEC regulations but still involve the sale of cryptocurrency tokens to generate capital for new businesses. This relatively new approach to capital formation through STOs has raised some $380 million thus far, and many are predicting 2019 as the year when STOs really take off.
Security Token Defined
As a blockchain-based, tradable financial asset, the security token adheres to strict regulatory criteria in accordance with the country in which it is issued. Tokenizing a security can have multiple benefits, including the ability to fractionize it – something not doable with stocks and bonds. Companies can raise money through security tokens. These tokens can be set up to provide owners with tangible value, such as a return through revenue distribution or a share in equity.
Security Token Offerings (STO)
A security token offering is an offering involving the issuing of security token at a set price, often before the tokens are made accessible on an exchange. These tokens are often provided with discounts during the initial crowdsale. Restrictions are usually imposed regarding those who may invest in the offering.
Benefits of Running a Security Token Offering
If you are searching for a way to raise funds for your project, creating a security token may be a viable option to consider.
Some of the main benefits include:
- These offerings are compliant with SEC regulations, unlike ICOs which may be potentially classed as unregistered securities, which is a violation of SEC regulations.
- Tokens may be divided into smaller parts, enabling investors to own partial or fractional tokens
- These offerings can generate funding in the thousands or millions of dollars.
At this stage, no laws have been passed and signed into law that specifically regulate security token offerings in the crypto currency market. The securities markets as a whole have general provisions. These are basically analogous to the initial offer of security tokens, so companies are able to utilize STOs to generate financing for their projects.
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