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What are Security Token Offerings (STOs)A security token offering (STO) is a fund-raising tool that is similar to an ICO. The main difference is that, with an STO, there are regulations that hold the token issuers accountable for their actions.
Security tokens are financial securities. They backed up by tangible assets, like the revenue, profits or assets of the company. Security tokens often come with specific rights in the same way as ordinary shares in a company do. Voting rights, for example, and revenue distribution.
A security token works in the same way as a conventional security does. Except that, ownership is confirmed via blockchain transactions. The use of blockchain technology also makes partial ownership of security token possible. Security tokens are governed by the same regulations that conventional securities are. This provides investors with greater confidence in them. Security tokens are, in effect, programmable securities.
The rapid rise of ICOs has established them as a viable method of crowdfunding. However, while ICOs have helped many companies raise funds, the lack of regulation over ICOs has led to some issues. To combat these issues, a curated STO List was needed. That’s why ICO Toplist is now hosting an STO list so that a broader audience can find the best STO projects.
Why we need STO list?We created the STO list on this website to help connect people with viable STO projects. Having already helped many people to connect to ICO projects, we decided that the same thing was needed for STO projects.
The Growth of Security Token Offerings (STOs)Blockchain technology has been continually advancing since it first began to gain prominence. That was initially due popularity of Bitcoin in the early days. Now, with the advances in smart contracts, STOs are growing in popularity. They are providing a new computerized way of raising funds within an established legal framework. STOs are beginning to emerge as a potential replacement of ICOs.
4 Layers in STOsIssuance Platforms
Issuance platforms provide facilities for companies to tokenize their securities. They also provide a platform for people to invest in those tokens. Issuance platforms are responsible for creating smart contracts for the issuing of security tokens. Smart contracts that are acceptable to both issuers and investors.
Security tokens do not use their own specific technology. They are developed on existing blockchain protocols. Currently, the best-known of those blockchain protocols is Ethereum. However, there are other protocols now entering the space as well.
One of the most important components of the digital asset ecosystem is the exchanges. Exchanges facilitate the trading of security tokens, which brings liquidity into the equation. A token has no value at all if no one is prepared to buy them. The trading the takes place on exchanges places a value on tokens.
Smart contracts are not the same thing as legitimate bonds. Smart contracts are basically a programming language set by the blockchain protocol. In a perfect world, all tokens would be backed by a utility. That is, they would be used to fund the development of a cryptocurrency that will be used to purchase goods or services. This is why they are sometimes called utility tokens. The definition of legitimate bond is a complicated one. The Commodity Futures Trading Commission (CFTC), which is an independent agency of the US government, views Bitcoin as a commodity. The Internal Revenue Service (IRS) defines cryptocurrency as property. The Securities and Exchange Commission (SEC) have indicated that many ICOs are securities. Commodity exchanges that provide a spot market or currency trading do not need to be licensed as a regulated entity. However, a platform that offers securities is required to register as a national exchange or alternative trading system (ATS). Or, it should apply as a broker-dealer. Companies that are involved with financial assets, such as bank deposits, and bonds, are required to comply with consumer protection laws, the USA Patriot Act, and the Bank Secrecy Act.
Advantages of Security TokensThe issuing of security tokens under the relevant regulations tends to be much faster and cheaper than raising funds through an initial public offering. Tokens that have been classified as securities often provide investors with the opportunity of benefiting from dividends as well as making profits and being granted voting rights. This is the same as it would be with shares in publicly traded companies.
Unlike other models for investment, there are no administrative costs associated with the buying and selling of tokens. The lower cost is part of what enables people to make substantial returns on their investment in tokens.
Fast and Efficient
The process of buying and selling security tokens to accredited investors is fast and efficient. This is thanks to the automation of the meeting the requirements of KYC and AML regulations.
Worldwide Trading Capability
Security tokens enjoy high levels of liquidity, and they are traded on a global market. This provides access to tokens to anyone in the world. The fact that security tokens have are now accepted as financial instruments and they are being readily adopted has also helped to reinforce liquidity levels.
The ability to exchange security tokens 24/7, any time, any day, makes them very attractive. Much more so than other conventional securities that can often only be traded at certain times of the day.
Disadvantages Security Tokens
Excessive regulation could be one of the factors that may slow the growth in the use of security tokens. This includes limitations on who will be able to invest in security tokens. Regulations with regards to who may take part in security token offerings may also impact on the liquidity of security tokens. The secondary trading of conventional securities usually involves middlemen, such as brokers. The tracking of securities can also be time consuming and costly, because the burden is on the issuers to safeguard against regulatory risk. It is these inefficiencies that force the issuers of securities to impose restrictions on trading. That, in turn, leads to a lack of liquidity. This can prevent issuers from realizing the full value of the underlying asset.