What is An STO and How It Works? - Coindoo

What is An STO and How It Works?

Editorial Team Avatar
Jun 28, 2019
3 min reading time

STO is the abbreviation of security token offering. It is similar to ICO which uses the coin or token as an asset in the investment. There is a difference though. The security token signifies the ownership information of assets like funds, real estate, bonds, and stocks.

In the STO, the investment product is comprehensive with the physical assets like company or property, or everything else.

Meanwhile, the security token represents the ownership information. The data is within the blockchain. In the conventional investment method, your ownership information will be recorded on physical documents or the soft copy in PDF. Meanwhile, the STO conducts the same process but your information is recorded on a blockchain and converted into a token.

The coin in STO may not be used for the environment or investment. It focuses on the investment contract supervised by law. STO is also different from IPO. The most significant difference is that STO issues the tokens on the blockchain. Meanwhile, IPO issues the certificates in conventional markets.

Being involved in the STOs can be difficult because these are regulated depending on the jurisdiction of the party. For instance, the SEC – Securities and Exchange Commission really emphasizes the importance of STO’s regulations. According to SEC, ICO rating will be categorized as a security if it is prevalent with investment contract understanding.

Security tokens have special characteristics. We could define them as a specific investment like a share or debt instrument.

Any countries have banned STO. You won’t be seeing any STORY in these countries: India, Bolivia, China, Vietnam, South Korea, Algeria, Namibia, Morocco, Zimbabwe, Lebanon, Pakistan, Bangladesh, India, and Nepal. If your countries are not on the list, that does not merely mean that STO is allowed. Perhaps, your governments are still weighing to issue the regulations.

The real-world asset is backing the security token. As we know about the utility token, it can be daunting to assess the value of the token although we’ve seen their good ICO rating on the ICO list. But with the security token, you will have peace of mind since it is backed with the physical asset. It is a lot easier to confirm the token value. STO is much cheaper compared to the traditional IPO. The strongest reason is that because there is no middleman.

Meanwhile, the smart contracts of security token will also minimize the connection to lawyers. That means the blockchain technology can help you to alter the paperwork. The liquidity of a security token is also great. No matter where you are, you will be able to trade 24/7. STOs are legal. With the increasing number of investors, the volatility can go away.

But there will always be challenges lurking in the shadows. Perhaps, the most challenging aspect of STO is the changes in regulation. The increased regulation can revolve around ownership tracking, exchange approvals, and so on. The developer of the STO should be aware of the securities laws to comply. The regulations in some countries might also limit folks to invest in STO. If you are interested in it, make sure you do your research before proceeding.

* The information in this article and the links provided are for general information purposes only and should not constitute any financial or investment advice. We advise you to do your own research or consult a professional before making financial decisions. Please acknowledge that we are not responsible for any loss caused by any information present on this website.
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