Security token is a type of digital asset that represents or derives its value from some other, external asset and is issued on top of third-party blockchain network. Security tokens can both represent real-life material assets like square meters of real estate or grams of gold and non-material assets like, for example, companies’ shares. The process of generating security tokens is called a security token offering. Security token offering (STO) is a type of fundraising that is performed with a company offering tokenized securities. The defining feature of security token offerings is in its definition. When ICOs are conducted with cryptocoins and IPOs with securities, STO is a combination of both.
Security token offering (STO) is a type of fundraising that is performed with a company offering tokenized securities. The defining feature of security token offerings is in its definition. When ICOs are conducted with cryptocoins and IPOs with securities, STO is a combination of both.
A company can move in two directions when developing a brand new asset for the security token offering. The first way is to issue real-life securities and tokenize them via various platforms by using the distributed network as a repository for all the transactions. Blockchain won’t allow the info about securities to become misleading and will provide it with secure and high-speed operating. In this way, securities will be more manageable to provide to the initial investors and to offer its secure exchange. Besides, the potential investors will be sure that the company is firm in its plan and has some assurance in its future success. On the other hand, this approach still requires some prominent juridical work in order to develop the securities. The other way is to issue such tokens that are securities by nature but not in the real-life representation. It means that for such assets, the value is in the encoded rules that those tokens abide by. Such STO tokens don’t require any legal work but need significant work on the technical side of development as all the rules should be defined precisely and correctly. Anyway, both paths will provide the business issuing such securities with an efficient way to gather funding. The tokens will be likely listed on various exchanges and sold during the security token offering of the company. Investors will have a robust and stable way to both store and transfer their ownership rights over the assets.
When a company intends to launch a new Security Token through an STO, they usually set out all the details in a Whitepaper. Technical, financial and commercial information about the project is explained in this document. Normally they aim to provide a document that explains in plain language what they’re planning to do, to attract investors and other interested parties. The Whitepaper is usually accompanied by a One Pager, he project summarized in one page, and a Position Paper, which details the competition and their (better) position in comparison with the competition.
Security token offering services
Multiple companies provide security token issuance. Some of the blockchain Security Token Offering platforms are:
STO is also possible to perform with some more popular and less specific blockchain platforms that support token issuance, like, for example, Ethereum, EOS, NEO, Cardano, and some others. However, this approach will require some more advanced technical work as those platforms are not as focused on STO as the previously mentioned ones.
Read more on how to research STO Whitepapers to avoid scams here
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