Published on January 22nd, 2021 | by Bibhuranjan0
Security Token Offering (STO): Opening New Opportunities for Businesses
There are hundreds of ways to raise money for a promising startup: start a crowdfunding campaign, use social media marketing techniques, run fundraising events, and more. However, there is a technology that is currently dramatically changing the way companies and entrepreneurs raise money. Meet, blockchain – the concept that has disrupted the business world.
From an investor perspective, probably one of the safest investment options blockchain has to offer is the Security Token Offering (STO).
What is STO?
Security Token Offering (STO) is a legitimate method of raising funds from accredited investors. A startup or any other type of company tokenizes its real-world assets and offers them to the public. This investment method has allowed firms from any part of the world to gain access to a large amount of capital.
STO has grown in popularity over the past few years. According to Global STO Study published by BlockState in 2019, the number of STOs skyrocketed in 2018 and continues to grow rapidly.
BlockState compiled information on STO campaigns run by over 120 firms worldwide. The growth rate was about 80 STO in 2019, while in 2017 there were only 5. By June 2019, 64 campaigns had been successfully completed and raised nearly $1 billion.
The study also showed that STO adoption occurs in five jurisdictions: the United States, Switzerland, Germany, the United Kingdom, and Estonia. Together they make up 75% of all issuances. The companies participating in those STO campaigns come from various industries such as real estate, finance, banking, healthcare, software, arts, sports, e-commerce, energy, and others.
STO: pros and cons
Find out more about Security Token Offerings have many advantages and several disadvantages.
- STOs are regulated and overseen which prevents scams
- Easy asset tokenization for trading online
- Attracting only accredited investors
- Fractional ownership allowed
- Enhanced asset liquidity
- Fast transactions and reduced transaction fees
- A relatively young market
- A platform for STO campaign required
- Complex compliance, which may exclude participation in campaigns for some investors
One of the shortcomings can be dealt with, and we’re talking about an STO platform. Let’s take a closer look at this issue.
An ideal STO platform: what does it look like?
Running a successful STO is not that easy. It is a long process that requires consulting with a securities lawyer first, then turning to specialized agencies, and, of course, finding a reliable enterprise blockchain development and consulting company that will provide you with a convenient and customized solution.
Here are things you should pay attention to when building your own STO platform with a blockchain developer.
First, make sure that the chosen firm is ready to accompany you all the way to the platform launch: from collecting requirements to project implementation and integration with your business processes. There shouldn’t be any standard solution as your application must be customized to your needs and existing workflows.
Any platform’s purpose is to enable your startup to digitize any type of asset and provide you with suitable infrastructure for holding your STO campaign. The platform should automate processes such as investors’ KYC/AML/CFT, so it must have KYC/AML/CFT configurations set up. Jurisdictional regulations should also be programmed into a platform.
Multiple cryptocurrency support is another essential feature of a good STO application.
Platform developers should also create direct communication channels between your company representatives and investors.
Although UX/UI design has become a standard feature over the years, it’s still a good idea to pay attention to how easily you can navigate your application. It should be intuitive and easy to use. It is also good if the status of your campaign, statistics, and indicators are located close to each other and properly visualized.
Blockchain says it all
STO and blockchain are two inextricably linked concepts. The blockchain itself contains a number of features that make any blockchain-based platform highly secure.
Hashing and strong encryption protect all data and transaction details. After carrying out financial transactions and recording data on a blockchain, it becomes immutable, so data loss and falsification are almost impossible.
At the same time, the decentralization provided by blockchain technology enables transparency in the management and ownership of assets.
STO may seem like a complicated process, but successfully completed campaigns speak for themselves. Numerous examples also prove that the blockchain underlying STO is a promising technology for industries ranging from retail and e-commerce to energy, healthcare, and real estate.
In the end, STO has a lot more pros than cons, but since this is a young method of investing, we must give it time.