A security token offering (STO) is an evolution of the ICO concept. It’s a more secure way to raise capital using crypto currency and combines the benefits of initial coin offering with the strength of regulated financial securities.
An STO allows consumers to purchase digital coins or tokens as part of a public offering the same as they do in an ICO. The investment is backed by tangible items or assets such as profit or revenue in a company, a physical asset or other structure which can be leveraged as an investment. A security token is an actual financial security similar to holding shares or stocks in a company. In essence, a security token suggest to regulators that issuers are transparent about exactly what they are offering and it knowledge that the token is offered as a security. This helps issuers reduce the risk of regulatory interference and also help secure the rights of investors by placing legal and financial obligations onto the security issuer.
With immense confidence from marketers about STOs, the market capitalisation is expected to be more than $10 trillion by 2020. By contrast, ICOs have raised approximately $4 billion thus far. ICOs might have been the king of crowdfunding market in the last two years but STOs are anticipated to take off in a huge way.
In the near future, ICO’s will still have their place. Smaller startup projects will may choose to either run the risk of operating in a regulatory grey area or will merely engage in regulatory arbitrage and base their operations and crowdsale in countries that have ICO-friendly regulations.
For companies that wish to tokenise their securities offering rather than listing shares on a stock exchange, STOs is believed to have the potential to become the first choice of their funding. STOs will likely become a genuine competitor to traditional IPOs as the costs for an ICO remain cheaper and as more investors understand the advantages of digital tokens over “real shares”.
In an era where ICOs are becoming increasingly popular it’s critical that they comply with existing legislative frameworks. ICO’s have recently been under intense scrutiny and review by regulatory bodies around the world including the United States Securities and Exchange Commission (SEC).
This scrutiny is an important step in the growth of the ICO industry. PAC works with regulatory bodies and consultants and supports the further development of this fundraising process to be fully compliant as security offerings as needed. This can only be a thing for the industry as it moves from an abstract capital raising method into a mainstream security offering with huge market potential.
PAC’s team of finance, technical and marketing experts can provide advice and guidance on how to structure a compliant ICO for maximum return.