Blockchain Capital launched the first security token offering in April 2017and a whopping $10,000,000 was raised on that material and since then, the popularity of the securities token offering has grown significantly to date. Security token offering (STO) is frequently referred to as the next frontier in token evolution. But what is it, and why is it important? Many finance and investment experts say that security token offering (popularly known as STO) is the next frontier in the token evolution. But what exactly is STO and what benefits does it offer? This process resembles the ICO and involves an investor exchanges money for either token. Unlike ICOs, security tokens offering goes a step further to allow for distribution of the tokens that can be classified as securities.
Ideally, STO’s are connected to an underlying investment asset just the same way stocks, real estate investment and bonds work. Therefore, security offering helps to distribute securities. In other words, STOs are fungible, negotiable financial instruments that have a money value just like property investment.
Usually, STOs are not traded on the token exchanges market. Instead, exchanges that wish to offer STOs are required to comply with all the regulations such as the data sharing, token listing and onboarding procedures. Therefore, STOs are traded on specialized exchanges different from what other financial instruments trade.
Top Benefits of Securities Token Offering
Security token offerings are designed to be an alternative to ordinary token sales in terms of the regulatory compliance. The aim of STOs is to reverse the perceived inequalities that affect the investor, including the rights to dividends and other predetermined revenue benefits. Besides being beneficial to investors, STOs are also beneficial to issuers. They come with clear economic benefits under the token distribution and issuance regulations on the exchange.
Here are additional benefits that investors and issuers can obtain by trading in STOs
Credibility—the ICO trading is somewhat chaotic and full of scammers and unlikely to deliver the benefits that it purports to offer investors. On the contrary, STOs are regulated and this is why they are considered credible investment options.
They Improve Traditional Finance—it is arguable that traditional financial securities are expensive because of many intermediaries involved in the exchange. This is the problem that security tokens promise to resolve.
Programmability—It is possible to programme security tokens and implement them through smart contracts.
Free market—STOs are not restricted by the local or border regulations. Instead, they trade freely without limitations. It has fewer market mediators, hence reduced market manipulation.
Increased liquidity—Since STOs are traded on specialized security exchanges, investors are able to easily convert their assets into ready cash. What’s more, security tokens allow for the widening of the stakeholder involvement with increased equity and debt duties.
In Conclusion
Security tokens are now considered to be an alternative to the ICOs and other traditional securities instruments owing to their potential to address the enormous shortcomings of utility token sales. In addition, they have come to improve the traditional securities. If you have been planning to invest in STOs, you may go ahead since you know the benefits they offer.
