A complete overview of the Security Token Offering (STO)

David Kemp

ICO is an innovative and quick way of project funding, which helps you tap into a whole new group of investors. HHowever, the initial coin offering has some hidden stones, including low security of depositors. The answer to them is Security Token Offering (STO). Let's take a closer look at this advanced tool.

Security Token Offering Features

Registration of Security Token Offering takes place in the SEC, which makes STO completely legal. Crowdsale uses a distributed ledger, smart contracts and cryptography to ensure security. The principle of operation remains the same, so investors do not need to change anything in comparison with the ICO. In the article "Tokenization" you can learn more about this tool for investing.

Blockchain platform Polymath predicts that in 2020, the total investment in Security tokens will reach $ 10 trillion.

Key benefits of Security Token

A crypto asset is a digital certificate that grants ownership of a:

  • physical or virtual assets: oil, money, etc.;
  • credit liabilities;
  • participation in company management;
  • payment of dividends;
  • a share of the company's profits. 

Each of these tokens have value, it can be sold or used for profit. For example, the DGX token grants the right to receive 1 gram of gold.

Improved transparency

Registering with the SEC brings a lot to the table. For example, they disclose information about the company: the management structure, the risks to investments, the state of assets and financial results. As a result, there is an opportunity to conduct their investigation and check the efficiency and professionalism of the token issuer. In the long term, this ensures:

  • protection layer for investors from inefficient and fraudulent companies;
  • accumulation of capital by token issuers;
  • set of common rules for all market participants.

By itself, registration with the SEC does not guarantee a profit on investments. However, it confirms the legal activities of the company and the protection of the rights of its investors in case of fraud. ICO cannot offer you such protection.

Possibility of refund and funds recovery

If Bitcoin or Ethereum was stolen or sent to someone else's wallet, it is impossible to get it back or cancel the transaction. If the Security Token is correctly programmed, the owner is verified, and the sale of the asset was carried out without his participation, then refund is possible. Although this feature is rarely used in practice, it is still a nice option to have in case things go south. Investors are in favor of the feature. Therefore, there is reason to believe that more and more blockchain-platforms will prescribe the possibility of returning tokens to smart contracts.

 Offering security tokens is actually a new step in technology. These tokens are more transparent, legitimate and provide better protection for investors. Our portal has prepared a selection of articles on various types of crypto assets. Read them to have a better understanding of the processes and principles of their release and use, as well as recommendations on how to protect your assets against fraud.