What Is an STO (Security Token Offering)?
A security token is a token on a blockchain that represents a stake in the company. Security Token Offering, or STO, is a way for crypto startups to raise money. To understand better what STO is, we need to know more about security tokens.
Types of Security Tokens
Security tokens are subdivided into several categories.
Equity tokens
This token type is similar to traditional stock. But the ownership is transferred differently. Instead of keeping the records of ownership in paper certificates, the ownership of tokens is recorded on the blockchain.
Debt tokens
These tokens represent a short-term loan for an interest rate. In the case of a token, the smart contract that sits on a blockchain dictates the repayment schedule, dividend distribution conditions, and whatever else is included.
Asset-backed tokens
Asset-backed tokens represent ownership over a physical asset: property, an art piece, etc., their characteristics are similar to those of the commodity they represent.
How is an STO different from an ICO?
Source: Cointelegraph
STO, or Security Token Offering, is similar to ICO in the regard that it is used by startups to raise funds. But its main difference is that STO is completely compliant with the legislation of the place where it is run. ICOs lost their popularity due to not being regulated which resulted in a lot of scams.
How Is an STO Different from an IPO?
Source: Cointelegraph
IPO, or Initial Public Offering, is a way for startups to raise funds by selling a share of the company. IPO is fully regulated and can be performed according to specific rules only.
STO shares a lot of common features with IPO with the only difference being that an STO is about tokens, and IPO is about actual shares.
How Are STOs Defined and Regulated around the World?
In different countries, cryptocurrency and thus, STO is regulated differently. In the USA, STOs are regulated by the SEC (the Securities and Exchange Commission).
In the United Kingdom, STOs, as well as other crypto activities are regulated by the Financial Conduct Authority (FCA).
In the EU, MiCa is responsible for cryptocurrencies and all activities related to them.
Many countries banned cryptocurrencies and thus, STOs are illegal there. Among the countries that don’t permit crypto are: China, Vietnam, Algeria, Morocco, Namibia, Zimbabwe, Bolivia, Lebanon, Nepal, Bangladesh, and Pakistan.
What Are the Benefits of STO?
STOs in crypto eliminate scams because STOs can be launched only by following all the legal formalities. They are traded on verified exchanges only which increases their security level.
Almost every asset can be tokenized. It means that STOs provide multiple investment opportunities to all types of investors.
FAQ
Is STO legal?
Yes, STOs are absolutely legal.
What is STO in stocks?
Within STOs, tokens are offered as stocks.
What is an example of STO?
Any tokenized asset can participate in an STO. As an example, farmland STOs can be given.
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