- Automated Market Maker
- Blockchain Explained
- Blockchain: Private vs Public
- Blockchain Oracle
- Cryptocurrency Trading
- Digital Assets
- Digital Banking
- Digital Currency
- Digital Securities
- Digital Wallet
- Directed Acyclic Graph
- Equity Crowdfunding
- Equity Tokens
- Hard Fork
- NFTs (Non Fungible Tokens)
- Proof of Work vs Proof of Stake
- Security Tokens
- Stablecoins Explained
- Stablecoins – How They Work
- Smart Contracts
- Token Burning
- Tokenized Securities
- Utility Tokens
- Web 3.0
Table Of Contents
“Security token offerings” (STOs) share similarities with both initial coin offerings (ICOs) and traditional securities. This unique crowdfunding strategy combines the efficiency of blockchain technology, with the legal protections found in standard securities offerings. This form of crowdfunding creates a safer investment climate for potential investors.
Why We Need “Security Token Offerings” (STOs)
In most places in the world, there are no legal requirements for hosting an ICO. Anyone can purchase these tokens without having to reveal their true identity and companies don’t need to provide any information. These tokens do not have any transference requirements, and there is little recourse for investors who lose funds due to fraudulent activity.
Unfortunately, this lack of regulations led to increased fraud in the crypto sector. According to one report, as much as eighty percent of ICOs launched in 2017 turned out to be frauds. This fraudulent activity created an outcry from burned investors and a real demand for more secure options.
The Launch of “Security Token Offerings” (STOs)
Recognizing the Wild West nature of the cryptomarket, developers started developing tokens that fall in line with the Securities and Exchange Commission’s (SEC) current requirements. People that investing in an STO gain added customer protections. These companies must comply with ATS registration and meet proper broker-dealer requirements. These protections include the company’s legal name, address, members, and financial information.
Additionally, information provided by the potential investment undergoes an approval process. This process confirms that the information provided is true and accurate. When compared to the complete lack of checks found in the ICO sector, it’s easy to see why some investors look towards security token offerings for a better investment opportunity.
The First “Security Token Offering” (STO)
In March 2018, US-based Praetorian Group became the first firm to offer an STO. The platform lists as a cryptocurrency real estate investment platform. On March 6, the platform registered its seventy million dollar ICO with the SEC. The move was deemed as necessary by the platform’s developers because they were working within the real estate sector.
The platform utilizes PAX tokens to represent real estate. This strategy facilitates more accessible and more secure transactions. This strategy is known as tokenization, and it is becoming one of the fastest growing sectors in the cryptomarket.
Security tokens comply with both Know Your Customer (KYC) and Anti Money Laundering (AML) laws. This compliance means that both individuals and businesses must reveal they’re true identity before investing. KYC and AML laws are standard practice when dealing with financial institutions. Many analysts predict the same scenario for crypto services in the future.
“Security Token Offering” (STO) Benefits
STO investors receive direct benefits for holding a platform’s tokens. Depending on the platform, users gain voting rights, dividends, and even revenue shares. If you are investing in an ICO that offers these features, there is an excellent chance that you are investing in a security token. If this is the case, you should ensure that the token is registered with the SEC to avoid future consequences.
Security Token Offerings – A Bright Future
STOs continue gaining traction in the cryptospace. This flood of new tokenization platforms creates the perfect environment for strategies such as security token offerings to flourish. You can expect to see this trend continue as traditional financial institutions look towards the cryptomarket for future revenue.
You may like
CFTC Commentary Highlights Continuing Uncertainty on How to Approach Digital Assets
Grayscale Discount Reaches Record Highs as Market Uncertainty Lingers
Acting Comptroller of the Currency Testimony Highlights Focus on Crypto Moving Forward
Has the Original Ethos Behind Bitcoin Become Lost?
Investing In Liechtenstein Cryptoassets Exchange (LCX) – Everything You Need to Know
Regulatory Roundup – Amendments in the UK, Crackdowns in the US, and Loosening Restrictions in Hong Kong