“Blockchain STO Meaning: Security Token Offering explained” – Content:
- Blockchain STO Meaning
- How do you invest in STO?
- What is the difference between STO and ICO
- What is the difference between STO and IPO
- In which countries are STOs allowed?
- What are the advantages of STOs?
- What are the disadvantages of an STO?
Blockchain STO Meaning
So what is a STO? STO stands for Security Token Offering and is a tokenized digital security token. They are sold at Cryptocurrency Exchanges. These tokens can represent real financial assets such as shares and fixed interest securities. You can trade them without worrying about security. The reason for this is the use of a virtual blockchain ledger system to store and validate token transactions.
An investor receives a crypto coin or token that represents his investment. However, a security token is an investment contract representing an underlying asset such as stocks, bonds, funds and Real Estate Investment Trusts (REITs).
A security is therefore a tradable financial instrument that has a certain value. So it is an investment product, behind which there is a real asset such as a company or real estate.
As a result, a security token is the proof of ownership of the investment product, which is recorded on the blockchain.
How do you invest in STO?
Investing in STOs is almost the same as investing in traditional stocks. When you buy shares, the ownership information is written on a document and issued as a digital certificate, e.g. as a PDF. The same happens when you buy an STO. The main difference is that the ownership information is recorded on the blockchain. In addition, you will not receive a certificate but a token.
What is the difference between STO and ICO
Basically, STO and ICO have the same processes. The biggest differences are the characteristics of these tokens.
Behind each STO is an asset in e.g. the form of shares. They also comply with all regulatory obligations. Most ICOs are utility tokens. This gives you access to digital platforms or distributed applications (DApps). ICO tokens are therefore primarily about usage and not about investment. Therefore, ICOs can avoid certain legal frameworks. Furthermore, they do not have to register or comply with legal requirements.
This means that it is much easier for companies to bring an ICO to the public because there are fewer regulatory requirements to comply with. So it is also easier to cheat.
It is much more difficult with STOs, because there are strict regulatory requirements to comply with. After all, in order to offer STOs, you have to be able to draw up an investment agreement that fits the securities law. This means that a security token always needs a platform that ensures that the latest regulatory requirements are met. In addition, only money from accredited investors who meet certain requirements are usually accepted.
What is the difference between STO and IPO
IPOs are share certificates issued in traditional markets. They are only used in private companies that intend to go public. The IPO process is used to sell shares to investors to raise capital.
The same happens with an STO. The main difference is that tokens are issued on a blockchain rather than shares. An STO token can be stock shares, shares in the ownership of real estate, works of art, investment funds or other valuables.
The advantage of STOs over IPOs is that they are inexpensive to go public. IPOs must pay high bank fees. In addition, expensive legal and consulting fees can occur. STOs also have legal fees, but no bank fees due to direct market access because of the blockchain. In addition, the administration of the IPO is also much cheaper than IPOs.
In which countries are STOs allowed?
There are some countries in which trading with STOs is not allowed. These include countries such as China, South Korea, Vietnam, Algeria, Morocco, Namibia, Bolivia, India, Lebanon, Nepal, Bangladesh, Pakistan, and Zimbabwe. In Thailand, each STO case will be checked individually and then they decide whether the STO is allowed or not.
In all other countries, you are allowed to use STOs. It is important to comply with all regulatory requirements. Once you have complied with all process requirements, an STO is legally approved in all other countries.
What are the advantages of STOs?
Compared to ICOs, STOs must comply with regulatory requirements. This means that, unlike ICOs, they are compliant with regulations. In addition, the risk for investors is much lower. Behind every STO there is also a valuable asset that provides additional security.
In contrast to IPOs, STOs do not need an intermediate authority. The reason for this is the use of blockchain technology. This means that an STO is not dependent on banks, brokers and lawyers. As a result, STO is much cheaper. It also ensures that liquidity is significantly increased.
What are the disadvantages of an STO?
The biggest disadvantage of STOs is compliance with regulatory requirements. These ensure that the administrative burden of custody, ownership tracking, stock exchange approvals, Know Your Customer (KYC), etc. is constantly increasing. Over time, these rules could become costly for an STO to comply with all securities laws.
Another disadvantage is the expensive preparations. Although the STO procedure is less expensive than traditional procedures for the actual IPO, it is more costly due to extensive preparations at the beginning.
In addition, although banks, brokers and lawyers are omitted with an STO, this means a far greater responsibility for you. It also means that not only your own administrative costs increase, but also your risk of errors.