The potential for transformation in the financial services market is huge with crypto assets. While most people are familiar enough with utility tokens, security tokens are a new concept. Before we talk about the launch of Security Token Offering (STO), it is important to first clarify what STO and security token are.
A security token is one that is subject to federal security regulations. It can derive its value by trading an external asset.
Utility tokens cannot be used for accessing specific services. Security tokens however are assets with ownership rights. Security holders can enjoy equity, dividends, voting, and profit share.
Startups launching ICOs need to comply with all legal requirements to give investors more security and credibility.
While it’s true that the process can be complicated, there are many benefits associated with security token issuance. Tokenizing securities can increase liquidity, which can be attractive to more investors.
Security tokens offer other benefits, such as increased market efficiency and lower issuance fees. They also allow for fractionalization of larger assets. A security token offering could be a great way to expand the number of possible applications if the startup meets all the regulatory requirements.
These are the different types of Security Tokens:
Equity Tokens
Equity tokens can be used to show ownership of assets such as stock or debt.
Debt Tokens
Debt tokens work in the same way as a short-term loan at an interest rate to a company. Steem, one of the debt tokens, is required to buy Steem Dollars.
Utility Tokens
Utility tokens give users the ability to access a product or service later. Companies can use utility tokens to raise funds to develop blockchain projects.
Asset-backed Tokens
An asset-backed token can be a token created on the blockchain platform that is associated with a tangible object or intangible object having a certain value.
An ICO is a similar process to launch a Security Token Offering (STO). You must make sure you are prepared, deploy smart contract for different rounds of sales and create a product.
Here are some reasons why security tokens are attractive to founders
Low entry barrier
Security token offering, which are cryptographic tokens that can tokenize any asset, is available for everything from debt to parking spaces. This flexibility allows smaller businesses to raise funds via private capital markets at lower initial costs.
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Security Token Offering is a better deal than traditional VC deals. The best part is that the founders don’t have to give up their voting rights and board seats. It gives founders more peace of mind, and allows them to focus on growing their business profits. It allows founders to retain a significant amount of company ownership, while token holders can get dividend rights.
Accessibility to Institutional Capital
Security Token Offering is regulated and security tokens can be used as a gateway for traditional capital to the blockchain. Security Token Offering funds can be internationally funded. Security tokens are a gateway for traditional capital into the blockchain domain. Security tokens allow medium-sized companies to access international financial markets through VCs and family offices around the world.
Blockchain space is not bound by any one jurisdiction, making the post STO liquidity more accessible than tokens that are restricted to a single country.
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