If you are in the crypto market, then you know about the rollercoaster ride it went through in the past couple of years. The year 2017 was the year of ICOs. It is also seen as the year where ICOs gained tremendous popularity, only to fall in 2018. The current ICO model is not friendly to the investors. It is heavily favored towards the company or startup who is conducting the ICOs.
However, all of this is going to change thanks to the Security Token Offerings (STO).
Table of Contents
- What is a Security Token Offering (STO)?
- How Security Token Offerings Will Change Traditional Markets
What is a Security Token Offering (STO)?
Before we dive deep into learning how STOs can change the market, let’s understand what it is.
Security Token Offerings is an alternative to the ICO where the tokens offered by startups act as securities rather than just a token which no real-world asset attached to it. Unlike Utility token, they hold monetary value and can be traded or backed by something real.
The security tokens are digital investment contracts that ensure that the tokens issued are backed by real things including real estate, stocks, and so on.
STO came into light thanks to the SEC regulations which aimed to protect the investor’s interest. However, it might have some impact on the innovation as will limit few startups to raise money in the first place.
The need for STO in the market is undeniable. Many startups label their utility token as security token to bypass this, but that’s why as an investor you should always research properly before investing.
We wrote the article What is a Security Token? exploring this subject in-depth. You may want to take a look.
How Security Token Offerings Will Change Traditional Markets
Now that we got a good grasp on what security tokens are, it is now time to learn how they are changing the traditional market.
Access to new innovative ideas
With the help of STOs, traditional investors such as venture capitalist and institutional investors get access to invest in innovative ideas without risking everything. ICOs are extremely risky and hence offer great rewards and profit. However, that can easily be termed as gambling as most of the ICOs don’t have any working product during the initial stage. Security Token Offering will surely change how investors approach these project and keep both the interest of investors and the startup intact.
Access to More Assets
Until now, traditional markets stayed away from the ICOs as they were risky. But now with STOs, the markets assets flow will change. STOs will open up new ways to trade assets which are more reliable and accessible to all investors. Moreover, this will open access to new assets worth trillions of dollars. According to the article published by TechCrunch, STO will get access to $256 trillion of real-world assets. There are several advantages of the Securities Token Offerings over the traditional markets, such as:
Traditional markets work in a specified time of the day. That makes markets limited in terms of liquidity, trading volume and freedom. With digital trading and STOs, it will now be possible for traders to have a market that functions 24 hours, seven days a week. The inclusion of crypto and blockchain means better security, flow, and increased trading volume.
Improved cost management
STOs are very similar to IPO(Initial Public Offering). However, STO is easier to implement and handle thanks to the low implementation cost associated with it. As STO takes advantage of the blockchain, you don’t have to worry about admin management or need to hire a large number of people to run your STO successfully. Also, there are less legal costs associated with STO thanks to the transparency it provides from the start.
Managing Security Token Offerings are also easier considering that any compliance changes can be done by editing the restrictions using smart contracts. The same is not so easy when it comes to an IPO.
Legitimize the space, global access, and sparking adoption
We already discussed how security tokens make it easy for traditional investors to get access to innovative ideas. It also means that the market will get access to an unlimited flow of assets, sparking adoption.
In short, every benefit will ensure that space is legitimized and will bring new players to the market. As a startup or business owner, access to global capital can make tons of difference, because risks and costs can be controlled for all the involved parties.
Global access, in itself, means that anyone can participate in a Security Token Offering. For a company, it means a way to grow naturally and bring support for their project from the start.
Secure in almost every way
As Security Token Offerings take place digitally, they are more secure compared to traditional securities. If you buy a security in a company, you get shares that you can hold for future profit. The implementation has to be correctly done straight away considering that making changes, later on, can be tough.
This is not true for security tokens where the code is used to structure it properly. Companies can alter the code and provide better offers for their investors at different stages of growth. However, this is only possible if the security token allows it and that too in a predefined space.
ICOs have seen a mix of both successes and failures. Apart from failure, we have also seen startups or companies running away with investors money as they were not regulated. This lead to a distrust in the market causing unrest at a large scale. With security tokens, this will change completely as STOs are regulated.
The world of security tokens looks promising to say the least. However, not everyone sees it with a positive outlook. An intriguing article by Cal Evans on Security Token Offering(STO) discusses its dark side and how it can be a trap.
Security tokens are more secure than traditional assets as they live on the blockchain. Tokenized assets will help ease the process of buying and selling securities. Also, it can act as a doorway to transfer real-world assets digitally.
So, what do you think about Security Token Offerings? Do you think that they will change the traditional markets? Join us on our Discord and Telegram channels and get into the discussion: