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Initial Coin Offering

With STOs, investors buy security tokens that serve a real purpose. Before buying into an STO investors must go through a detailed verification process to prove their eligibility. In IEO, the business joins forces with the exchange platform to make crowdfunding happen.

Is Bitcoin a security token?

A cryptocurrency coin, like Bitcoin, Bitcoin Cash, Ethereum, etc. are examples of tokens which exist on a particular platform, in this case, Ethereum. A token, represent an asset or utility that a company has and they usually give it away to their investors during a public sale called ICO (Initial Coin Offering). ‘

But unlike an ICO coin or token, a security token contains an underlying asset such as stocks, bonds, funds, or Real Estate Investment Trusts . Blockchain assets , unlike traditional money, stocks, or bonds, can be programmed to interact with owners in particular ways. For example, blockchain assets can contain important KYC/AML constraints that permit only accredited investors to own and trade the asset. Currently, this security is managed by centralized databases, brokers and service providers. A truly decentralized stock exchange that operates across borders would require both issuers and purchasing parties to comply with international regulations. Complying with each country’s individual exchange laws would be a gargantuan and costly task — rendering “universal” security tokens extremely unlikely. It’s probable that there may never be a single exchange that services clients on a global scale in the STO market.


In 2017, ICOs globally raised about $7 billion and more than $13 billion in 2018. With these ICOs, investors often receive an ERC-20 token – in other words, a token that runs on the Ethereum network – in exchange for their investment. In some cases, cryptocurrency projects may later choose to create their own token on outsource react development a separate network – in this case investors must later exchange their old, ERC-20 tokens for the new ones; this is called a token swap. Unlike most other security token offering platforms, Securrency is quite diverse; it is partly an exchange, partly a currency, partly a bond, as well as an exchange-traded fund share.

However, the coin or token represents an investment contract into a real-world asset such as gold, stock, or bond. STO offers a more secure way to raise funds publicly that comply with regulatory governance while still having the ease of being able to do so digitally. This paper considers a financing problem for an innovative firm that is considering launching a web-based platform. sto vs ico Our model is the first one that analyzes an entrepreneur’s choice between security tokens (via a security token offering ) and utility tokens (via initial coin offering ). The paper also generates new predictions that have not been tested so far. Investing in an ICO is susceptible to tremendous pumps and dumps of the token because the value is mostly driven by hype and speculation.

Disadvantages Of The Ieo Structure:

With a security token offering platform, users are able to reach a wider range of potential investors, which enables them to attain their funding target faster. STOs have been very influential when it comes to the direction that blockchain is taking, and they also introduced a form of legal structure in the crypto space. Security tokens serve as an effective tool to fractionalize high-value assets and can provide better liquidity. There are multiple security token exchanges emerging, providing an effective trading environment.

For example, it powered the development of STO exchanges and gave rise to STO providers. Unlike ICOs, STOs come with specific regulations that hold token issuers accountable for their actions.

What Are The Disadvantages Of Stos?

For example, KYC checks can be coded in a way to allow only accredited investors to buy or trade tokens. That way, you can automate the ongoing compliance checks and make it impossible to violate securities regulations. They allow businesses more freedom into how they run their business compared to a privately held company. Security tokens can be traded after the initial sale, which makes them much more liquid investments. Moreover, they have more transparent value because it’s based on underlying assets, which means that the business is less likely to be shorted – even if it attracts a small number of very large investors.

As security tokens are protected by “real-life” securities, they are a popular choice among the accredited investors. This also makes it one of the most costly fundraising techniques when compared to ICOs and IEOs. over the actual terminology around the area of security tokens . As a recent article by Coindesk interestingly attested to this point, there is a distinction between Security Tokens and Tokenized Securities. An STO is a security token offering, which is an asset-backed security token. Once an investor invests, they receive either a coin or token similar to an ICO.

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The exchange will help the project with the listing, marketing, smart contracts, and more. Investors who want to participate in the IEO need to create an account at the exchange and then by tokens at the sale. As a result, businesses enjoy the support from exchange platforms and get to reduce the costs of their fundraising campaign.

sto vs ico

Theinnovative blockchain ICOchanged all that providing a wide open stream of capital for companies and an extensive pool of potential investors free from regulatory burdens. Any company at any time can launch an ICO and tokens can be purchased by anyone anywhere in the world. Funds can frequently be raised in a matter of minutes how to build culture in a remote team rather than years. Low-cost fundraising projects especially, benefit from the simplicity of issuing a crypto-token to secure the funds they need immediately to get time-sensitive projects up and running quickly. Over the last three years, the boom of Initial Coin Offerings has represented a real innovation in crypto-finance.

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In terms of legislation, some jurisdictions do treat STOs, ICOs, and other cryptocurrency-related operations under the same legislative umbrella. In general, sto vs ico though, STOs are placed under securities legislation , and ICOs under utilities, with the differentiation being made mostly on a case-by-case basis.

To understand what STOs are all about, it’s important to know what security tokens are. A token can be classified as a security when it works as an investment contract – they represent legal ownership of digital or physical assets. That’s why STO tokens can only be issued once there exists an infrastructure that supports such practice. The platform dedicated to managing security tokens needs to adhere to a number of different policies such as KYC and AML. Such platforms need to be regulated and licensed to trade commodities too. To sell security tokens, projects need to abide by the legislation recommendations of the local authorities in many different aspects, starting from marketing to KYC/AML. On the surface, both the Initial Coin Offerings and the Security Token Offerings follow a similar process in which an investor receives a crypto coin or token representing his investment.

Security Token Offering (sto): Analysing The Process Of Issuing Security Tokens

Moreover, unlike regular utility tokens, STO deals with security tokens which are real-world digital assets that operate within well-defined legal boundaries. Debt security holders typically receive interest payments on the principal. Securities are traded on stock exchanges and they are considered as assets when they’re transferred between investors in secondary markets. As such the STO is in the spotlight for its potential as a valuable tool to allow companies to digitize assets on the blockchain.

sto vs ico

Users can transfer any form of an asset on the platform, including fiat money, listed securities, and tokens. This is a more recent STO platform whose core objective is to offer an end-to-end tool for individuals and companies looking to create security tokens. Securitize enjoys a good reputation in the cryptocurrency space and it offers a highly flexible and super back-end to assist users in the process of issuing their securities. Generally, the protocol layer is in charge of all the computation on the platform, while the application layer allows users to create their own security tokens. The legal layer offers guidance to those who wish to create tokens on the platform. And lastly, the exchange layer is more of a closed-end KYC/AML accreditation that offers its users instant liquidity for their assets.

Benefits Of Ieo

It is worth noting that even in countries where STOs and ICOs are under the same legislation, security tokens still require a connection to a registered company with real assets being sold. Unlike ICOs, STOs provide token holders with some form of ownership or equity over a tangible asset that belongs to the company; either in full or fractionalized. This way, investors can expect a profit via the STO’s revenue or through dividends. Simply put, the security tokens provided by STOs are an investment contract in electronic form, powered by blockchain and the smart contract system. ICOs cannot offer the same guarantees to investors because utility tokens are not backed up by any form of tangible asset.

Security tokens bring a new revolutionary tool to the financial scene in the form of a new, fast, globally inclusive and effective investment option. While security tokens at the moment are lacking some regulations and widely-used exchanges, there is a very high demand from institutional investors. Blockchain projects began using Initial Coin Offerings in July 2013, when Mastercoin held what is thought to be the very first ICO. In an ICO the blockchain company sells tokens to investors, typically in exchange for BTC or ETH, in an effort to raise funds for the ongoing development of the project. Investors who buy security tokens are similar to those who invest using real bonds and stocks. The security tokens are a type of crypto-security and are secured by KYC-AML processes along with other regulatory protections.

Projects also take advantage of the credibility such exchanges bring to them, as well as the existing user base of potential investors. Still, the complexity of legal regulations over multiple jurisdictions carries some risk. Businesses looking to create security tokens will have to rely on experienced teams who know what they’re doing. You should also get legal expertise that covers every cloud deployment models region where you want to sell your tokens, as compliance with local securities regulations can be tricky. However, specialized STO platforms like Tokeny often provide this type of expertise to businesses. In general, compliance issues are more complex with STOs than ICOs. However, you can hard-code compliance into the security tokens with new standards developed on a blockchain.

sto vs ico