The Forecast on Security Token Offerings (STO) Flooding the Financial Market
With so many abbreviations like OTC, RSI, ICO, and others saturating our financial cryptocurrency vocabulary, it’s hard to keep track of who is who and what is what.
To get to the core of what STOs are and what their future holds, let’s start with its forerunners.
When you start a company you have various options for acquiring funding — getting a loan, a venture capital or asking for love money just to name a few. These options allow you to keep assets and your company’s governance private. You don’t have to disclose much financial or accounting information about your business operations, and the control over the direction in which your company is moving mostly belongs to you.
Now, when you want to acquire much more initial capital you can make a decision to turn your company public. What that means is it enables every individual to buy a percentage of your company, which gives you as a company owner a huge boost in financial assets and opens many doors to further company development. To protect shareholders’ interests, the government, or the Securities and Exchange Commission (SEC) in the US for example, abides you to a number of guidelines and regulations you have to follow.
This is what company being an IPO — Initial Public Offering is.
That was and still is a common practice when it comes to securities acquiring and distribution — when we are talking fiat money. With the birth of virtual currency also arose another way of fundraising called an ICO — an Initial Coin Offering, which has some major differences from its fellow IPO predecessor. ICO is a way to acquire funds for a blockchain-based startup with the use of a smart contract to govern credible transactions without having to use any third parties. As opposed to IPOs, ICOs don’t supply investors with securities in exchange for capital but exchanges their investment for utility tokens instead.
Contrary to acquiring shares, being an ICO investor does not grant you any stakeholder rights or securities for that matter, but allows you access to special packages and bonuses available on the platform, along with an opportunity to further invest or trade the said tokens, and profit as a result.
Now let’s talk about STO’s. STO is a Security Token Offering. Now that we went through their meaning, having the words security and a token in one sentence should sound pretty odd to you. And believe it or not, it is its biggest advantage. As you might have guessed, STO’s combine the best of two worlds.
In fact, it is a such a powerful combination, that it is estimated to transform into a $10 trillion venture by 2020!
The reason behind the predicted rise in the number of STOs lays behind its numerous advantages. To begin with, it gives access for foreign sponsors to invest in offshore ventures not limited by their homeland or currency borders and enables company owners to market themselves to a much broader investor pool. Which in its turn presents an advantage for smaller companies to avoid a number of heavy expenses due to legal fees, associated with entering each new foreign market.
Secondly, STOs provide more advantageous terms and conditions when it comes to company management. As a starter, you keep full control over your company’s direction and board seats. This way the management team operates within a safer environment making more rational thought-through decisions, knowing that there’s little to no chance of being removed from your own company.
Thirdly, when it comes to equity STOs, companies may offer common stock as opposed to selling preferred stock. This allows founders and other major investors to maintain their significant ownership percentage in upside and not so scenarios. Even though common stock security token holders will receive their dividend rights, Security Token Offerings can thrive and operate without the need for granting the voting rights to the above said investors. Which — once again — allows core company’s management to have more control over their own company.
Lastly, combining features traditionally rooted within securities with new advantages presented by tokens can result in various advantages for both — creators and end users. Purchasing security tokens from a particular business or a service opens a leeway to multiple customer perks and bonuses associated with their activity.
To summarize, the rise of Security Token Offerings is coming, and it’s coming hard. Being convenient for all the parties involved, namely founders, investors, and end-users, it provides an upgraded way to raise money and it’s only a question of time until it floods the market completely.
