The advent of blockchain technology and cryptocurrencies have led to the emergence of several blockchain-based projects. Naturally, these projects also require funds. Consequently, it led to the rise of fundraising mechanisms. First came the ICOs, followed by IEOs, and now STOs have captured the scene. Although ICOs and IEOs have helped many startups raise substantial amounts of money, they have also been plagued by a large number of scams.
On the contrary, STOs have managed to make their mark as a relatively clean form of fundraising mechanism. Their success has forced many to wonder if STOs will replace ICOs and IEOs in the future. In this blog, we shall uncover the various facets of security token offering and their potential to disrupt the fundraising mechanisms. But let’s first understand what STOs are and how they differ from ICOs and IEOs.
What is Security Token Offering?
Upcoming Security Token Offering Listing is a crypto-asset that gives the additional investor rights to the owners. The owner of an STO enjoys greater rights than a token purchased through an ICO and IEO. An STO lets the investor choose from various forms of rewards after the issuing company becomes fully-functional. One can choose whether they want to own stakes within an organization or get their share from the profits and traditional stocks. Security Token Offerings are the crypto version of certification that investors receive when they buy a company’s stocks. Contrary to the paper document that one gets during stock purchase, investing in STO makes the purchase that visible part of the blockchain, which can’t be altered. Therefore, you contribute to the company’s fundraising drive through a digital asset that you can exchange later for any of the rewards mentioned above.
STOs Taking Over ICOs and IEOs
October 2018 saw the maximum number of STOs taking place. The shift from ICO to STO has come on the back of softened demand from retail investors for ICO on account of the scams that took place during several ICOs. STOs led the pack in 2018 as the most popular fundraising program as they contributed to more than 20% of all fundraising projects. It was because financial services, which was leading the ICO numbers, took a step back. STOs led to an influx of investments into real off-chain businesses to provide equity in lieu of capital.
STOs benefit from better investor protection, higher regulatory levels, and moderate costs for companies investing in the projects. As investors find the asset-backed token more appealing, the probability of STOs fundraising campaigns exceeding their targets is significantly higher than ICOs and IEOs. This is precisely why STOs will replace ICOs and IEOs in the coming days.
The Four Layers of Security Token Offerings
Security tokens don’t have any protocol technology. Existing protocols with Ethereum are used to construct the protocol technology. However, several other protocols are entering the space and Ethereum isn’t the sole option now.
Regardless of how stylish the term sounds, it is by no means related to the legal bonds. These refer to programming languages that various blockchain protocols bind. Since they have value and are of immense utility, they are called utility tokens.
We see new projects being registered on the security token offering listing. Exchanges are the most critical aspect in the cryptocurrency world as they facilitate trading, thereby boosting liquidity. Without exchange platforms, there is no way for the tokens or coins to continue their flow.
These platforms produce and distribute crypto tokens. They also ensure compliance and regulation for token issuance.
STOs are well-poised to overtake both ICOs and IEOs in the future. Their legal status, regulated standards under central and state jurisdictions, and offer of a promising investment opportunity make them the preferred fundraising option. Moreover, the Bitcoin price wouldn’t influence their returns, but the businesses’ positive cash flow. This can help the digital economic ecosystem thrive and flourish in the future. Therefore, the question isn’t of whether or not STOs will replace ICOs and IEOs, the question is of when and how that would happen.