Security Token Offering


From 2016 - 2018, ICOs were in demand, — and investors didn't mind pouring their money into this new form of fundraising. In Q1 2018, over $6.3 billion worth of capital was locked into ICOs. The expectation was that these investments would appreciate over time. However, the bubble burst in Q4 of 2018, when the "market cap" of all tokens fell by over $750 billion. The United States Securities and Exchange Commission (SEC) was still shy in implementing regulation around token offerings.

Soon after, regulatory bodies began making announcements around the topic of compliance. The most notable from SEC Chief Jayy Clayton: He declared all ICOs securities; Swiss FINMA also issued guidelines that classified tokens, as per the existing legislation, as securities. These and other pronouncements on ICOs led many blockchain founders to protest; they claimed their projects offered utility tokens and were not securities. The regulatory shadow hanging over ICOs pushed entrepreneurs and investors away from the market.

Regulators today want token offerings to remain compliant with the existing laws and rules around securities — hence, the Security Token Offering was born. STO is very similar to ICO but is compliant with securities legislation in the location where the token is being offered for investment. As STOs are compliant with related laws and rules, they create additional legal obligations for issuing equities in the company.


What is STO

A Security Token Offering (STO, i.e. tokenized IPO) is a type of public offering in which tokenized digital securities, known as security tokens, are sold in security token exchanges. Tokens can be used to trade real financial assets such as equities and fixed income, and use a blockchain virtual ledger system to store and validate token transactions.

Due to tokens being classified as securities, STOs are more susceptible to regulation and thus represent a more secure investment alternative than ICOs, which have been subject to numerous fraudulent schemes. Furthermore, since ICOs are not held in traditional exchanges, they can be a less expensive funding source for small and medium-sized companies when compared to an IPO.[6] An STO on a regulated stock exchange (referred to as a tokenized IPO) has the potential to deliver significant efficiencies and cost savings, however.

By the end of 2019, STOs had been used in multiple scenarios including the trading of Nasdaq-listed company stocks, the pre-IPO of World Chess, FIDE's official broadcasting platform, and the creation of Singapore Exchange's own STO market, backed by Japan's Tokai Tokyo Financial Holdings.

(Source: Wikipedia)

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