What is STO (Security Token Offering)? A details guide
- 1. What is STO (Security Token Offering)?
- 2. What is Security Token?
- 3. What are the characteristics of STOs?
- 3.1 Advantages of STO
- 3.2 Disadvantages of STOs
- 4. What does the STO ecosystem include?
- 5. Difference between STO and ICO
- 6. What is the difference between Utility Token and Security Token?
- 7. STO projects
- 7.1 Classification of projects by investment group
- 7.2 Classification by industries
- 8. Assessing the potential of STO
- 9. Challenges faced by STOs
- 10. Investment opportunity STO
- 10.1 Investing in Security Tokens
- 10.2 Invest in STO issuance platforms
- 11. The importance of issuing a Security Token instead of Utility Token
- 12. Security Token Cons
What is STO? Why did the term STO attract so many participants all the time? Can STOs be an alternative to ICOs and IEOs? What are the potentials, opportunities, and challenges facing STOs? If you are also interested in STO and have the same question, let's find out with BHO Network in the article!
1. What is STO (Security Token Offering)?
STO (Security Token Offering) is a form of fundraising by selling Tokens to investors. This type is similar to ICO (Initial Coin Offering). The difference is that STOs do not have Coins/Tokens that represent fixed assets or stocks. Instead, the Tokens in the STO are Security Tokens, and it represents the Stocks, Bonds, Funds, and Real Estate, .. of the business.
With the number of Security tokens held, investors will receive Dividends (dividends), profits, shares, etc. Because of that, STO is somewhat similar to a traditional IPO. But Blockchain issues STO tokens, and they inherit the advantages of Blockchain and Smart Contract. That gives STOs the ability to outperform ICOs and IPOs.
2. What is Security Token?
Security Tokens are released through STOs. Usually, these Security Tokens are issued on specialised platforms such as Swarm, Lition, Own, and Securitize,... Tokens are called Security Tokens when they satisfy the following conditions:
- It is a product of financial investment.
- The investment must be made into the business or organization.
- Expectations of investors in the type of Token.
- 3rd party creates profit expectations
3. What are the characteristics of STOs?
Perhaps users are pretty familiar with previous software such as ICO and IPO, but using this software is still quite problematic. Typically, the tokens sold do not attach business value. The holder can sell without being bound and responsible. Investors are not protected by law,... STO was born to solve all those problems.
3.1 Advantages of STO
STO brings many benefits to investors and the STO development platform. The outstanding advantages of the platform can be mentioned as follows:
- Reducing possible risks for investors: This will help eliminate pirated and fraudulent projects. . Through Roadmap, it is possible to detect fraudulent acts of individuals and businesses and be punished according to the law.
- Investor's position: Security Token is the key to holding the power of investors. Owning more Tokens will help them become more voice and place.
- Playground of many investors: Traditional investment often limits investors, but that problem will be solved with STO. Regardless of whether investors are large or small, they can participate in projects on STO.
- Eliminate intermediary costs: Tokens are issued on Blockchain and use Smart Contracts so that it will eliminate operating expenses such as Brokers, banks, and some legal parties.
- Increase liquidity: By eliminating the gap between investors, STO will help increase liquidity for the corporate market.
STO development platform:
- Products are strongly developed thanks to the pre-installed standard frameworks.
- Security Token is "inherited" the characteristics of Blockchain so that it will optimize the use of products and services such as Stocks,...
3.2 Disadvantages of STOs
In the early stages of development, STOs cannot avoid mistakes. Specifically, the trading platform still has the following disadvantages:
- The legal framework is unclear: The tokens are guaranteed by law, but the legal framework of the STO is not specific, similar to the IPO.
- Projects are under tremendous pressure: Due to being responsible before the law, if there are a few minor errors, businesses also have to be under immense pressure before the "whip of justice."
- Security Token has many limitations: This is a security token, so it has many limited features and must always comply with the provisions of the law. To use Security Token as a Utility Token (utility Token) in the project's ecosystem will be very difficult.
- In addition, Security Tokens are issued with values attached to the business's assets.
Read more: What is MLM Coin? Everything you need to know
4. What does the STO ecosystem include?
What do you know about the ecosystem of STO? How will this ecosystem affect the scale and projects? Please refer to the following:
- STO Platform: This is a form of STO deployment by developers and investors. Most of the projects on this platform are security token issuance projects.
- STO Projects: This is the Token issuance platform of the developers. Token developers can use STO Projects to issue security tokens.
- STO Exchange: This is the place where investors will trade their security Tokens.
5. Difference between STO and ICO
Between a "veteran" product - ICO and a "newcomer" - STO will What are the differences? Let's make a reference based on a few factors below:
- STO issues the majority of security tokens.
- The ICO will issue Utility Tokens.
- STO: Token price will largely depend on company assets.
- ICO: Price will be decided by the dev team.
- STOs are held accountable and protected by law.
- ICOs are restricted in some countries and do not currently have legal provisions.
- STO: Can be company property, mortgage,...
- ICO: None
- STO is on a solid growth trend
- ICO has had a slow growth rate in recent years.
Another vast difference between STO and ICO tokens is the quantity. Security Tokens are tied to the company's actual value, so there will almost be a limited supply. Besides, the Utility Token of the ICO project did not specify this issue. The number of Tokens and limited supply will depend significantly on the design of the dev team, which is also quite inconvenient.
6. What is the difference between Utility Token and Security Token?
Above, readers have understood the difference between STO and ICO. So diving into these platforms, what is the difference between Utility Token and Security Token? The answer will be right below:
- Security Token is a valuable asset that can be converted from a business and can be traded. However, because it is a Security Token, it will be bound by law, especially for securities-related products.
- A utility Token can be understood as a gift card or voucher issued by the project owner. The owner can use it later for the project's products and services...
- The primary difference between Security and Utility Token holders is that the owner will hold ownership rights with Security Token. Assets of the business, not for owners of Utility Token.
7. STO projects
STO projects will be classified and divided into different project groups. Each project will have its peculiarities and properties. Here are two main project groups that you can refer to.
7.1 Classification of projects by investment group
According to the observation and assessment, the Company Equity group (company shares) is being "watched" by many investors. Specifically, the project accounted for 52.44% of the total number of projects calling for STO capital. This proves that investors care a lot about the assets and real value that the company has. Participation Certificate, and Equity Funds groups also have a high-interest rate.
7.2 Classification by industries
According to the analysis, Financial Services (financial services) account for a reasonably large proportion, specifically about ⅓ of the total number of STO projects. The group located directly behind is the Real Estate and the Technology group. With these 3 investment groups, it can be seen that investors are pretty interested in traditional markets. Real estate, technology, and financial services always occupy the spotlight and are prioritized for investment.
8. Assessing the potential of STO
STO will be suitable for companies and businesses that have been in operation and have a minor position in the market. STOs are not for fledgling startups. Because of that, STO has a distinct advantage over ICO. Most projects, companies, or organizations that have products and revenue become potential customers of STO.
Based on data provided by Own Market, the global Equity value reached $74 trillion in 2018 and is expected (by The World Bank) to be about $100 trillion. There are approximately 420 - 530 million MSMEs (Micro, Small, and Medium Enterprises - micro, small, to medium enterprises). 30% of users use many external financial services, but not effectively.
STO's solution is to apply the outstanding advantages of Blockchain, gradually change the traditional market economy, create new steps for the traditional stock market, and constantly use and improve advanced modern techniques, leaping forward for the world market.
9. Challenges faced by STOs
With a new platform, the early stages are always tricky and challenging. The fierce competition in the market and how to get a foothold in the infancy stage,... are common problems for new products. Here are some of the challenges faced by STOs:
- There is no clear and specific legal framework.
- Reception of companies, projects, investors, and traditional markets. In other words, the personal brand has not yet been located.
- Some tools, services, and STO issuance platforms need to be reworked into standards.
10. Investment opportunity STO
Blockchain is still considered a new and potential technology. STO fundraising form with Security Tokens associated with this technology is also quite advanced. Therefore, STO has a lot of potential and opportunities for future development.
10.1 Investing in Security Tokens
Since the value of Tokens is tied to company rates when choosing an investment, investors need to consider the following criteria:
- The company has EPS (Earnings per share), and year-on-year profit has been growing continuously.
- Dividends are paid in full and regularly.
- Considering the supply, demand, potential and position of that company.
10.2 Invest in STO issuance platforms
This belongs to platform projects and allows supporting projects and companies to issue STOs. STO will need a project to develop the platform in the early stages. This will be a massive opportunity for investors, but investors also need to consider and choose based on a few criteria such as:
- Legally guaranteed security tokens.
- Tokenization solution (Tokenization).
- There are support programs such as promotion, and advertising market selling STO to the community.
- Support market to trade Security Tokens.
- Tool to manage portfolios and projects to issue STOs or investors.
Read more: What is Bitcoin Hard Fork? History and Timeline
11. The importance of issuing a Security Token instead of Utility Token
Keeping its position as a bridge between finance and Blockchain technology, Security Token Offering will bring several benefits:
- Gain credibility: All activities of STO are supported, Monitored and guaranteed by the legal system, so Security Token will bring trust to users. In addition, Security Token also takes advantage of the fast and transparent advantages of Blockchain technology and provides safety assurance for project owners.
- Easy access to the investment market: With STO, project owners can easily access the freelance investor market through an e-commerce platform on the Internet. On the contrary, freelance investors can easily buy tokens of potential projects.
- Minimizing some legal consulting service costs: With the smart operation of the Blockchain platform, legal services from lawyer services will be replaced to help reduce unnecessary intermediary costs. Worth having.
- Reduce manipulation: Blockchain technology reduces the role of intermediary organizations, helping to reduce the manipulation of some non-transparent individuals and organizations.
12. Security Token Cons
Besides the advantages and opportunities of Security Token, there are still disadvantages. Specifically, some things are as follows:
- Issuing Security Token does not have any specific regulations on the standard assessment of what is Security Token and how to give a Security Token.
- The removal of intermediaries increases the pressure on investors and project managers.
- With many regulations on securities assets, the development capacity of the project can be narrowed down.
- Develop the crypto industry into a new asset class and comply with the legal regulations.
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Above is the entire content related to "what is STO." BHO Network hopes to give you an honest look at the STO platform through this article. Based on that, readers can more easily choose projects, investment platforms, and how to invest wisely, safely, and effectively! I wish users success with their choice!
Published on November 05, 2022
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