Security Token Offerings (STO) - What You Need To Know
There's a lot of hype these days surrounding security tokens. Here's what you need to know. STO's are emerging as a popular alternative to private equity and venture capital financing for companies globally. It is such a powerful alternative that Polymath estimates it will grow to be a $10 trillion opportunity over the next two years. One of the primary STO platforms, Polymath, estimates that security tokens will soon outdistance the now-dominant "utility tokens" like Bitcoin. Polymath sees security tokens exploding to a value of $2 trillion in 2018 alone and $10 trillion by 2020.
What is a Security Token?
A security is a financial instrument representing a real asset such as stocks, bonds or managed real estate trusts. Historically, when a security was purchased, the transaction was signed on paper. A security token performs the same function, except it confirms ownership of the underlying security through blockchain transactions. Security tokens can offer many financial rights to investors including equity, dividends, revenue shares, profit shares, voting rights and other financial instruments.
What are the advantages of an STO for a business?
STO's provide access to global capital. In the past access to foreign investors was mainly for large established companies who could afford the associated costs and risks. STO's are not limited by geographic borders. This means that a larger amount of buyers and sellers can interact post-STO, which can mean greater liquidity. STOs also generally have better terms than when compared to raising capital from VCs. Firstly, companies do not have to give up control of their company or a board seat. STO's give management teams more control over their company. Finally, STOs generally are able to raise money at higher valuations. STO's offer smaller companies the opportunity to raise large amounts of capital from a global investor pool quickly without necessarily having to absorb large costs, particularly in legal fees.
What Regulations Are Security Tokens Subjected to?
Because Security Tokens are subject to federal security regulations, they are compliant from the first day they launch. So, in the USA, security tokens need to follow these regulations:
Regulation D Regulation A+ Regulation S
As of now, security tokens have a far less share of the market as compared to utility tokens, however, security tokens are something which will become huge in 2019. It is believed that tons of capital is going to flow from Wall Street to security tokens instead of utility tokens.
This shift is happening because security tokens are considered to be safer because of the strict regulations that surround them.
About the writer: Ava Lauren I write articles related to bitcoin and other cryptocurrencies. Email me