What are Security Token Offerings (STOs)?
STO stands for Security Token Offering. It is a another class of ICO that has tokens registered as securities. There has been increased interest and research in Security Token Offerings lately and they look to be the way forward for crypto funding.
An STO is much like an ICO in that it is a token sale conducted on a blockchain where fiat or cryptocurrency is sent in exchange for tokens.
The biggest change to STOs in the legal status of the tokens. Most ICOs sold tokens that were not registered as securities. They instead sold utility tokens which most buyers bought because they expected returns on their purchase or investment in token price appreciation or dividends. This mismatch in purpose of the token sale and buyer expectation often meant buyers quickly lost faith in the token or project because the team did not have anything in place to increase token price or lower token velocity aside from the development of the project itself.
STOs have tokens that are registered as securities in their country of registration and are engineered to provide a return on investment to purchasers or investors. Of course this return on investment depends on the success of the company selling the tokens and is not 100% guaranteed as with any investment. With Security Token Offerings, buyers and sellers expectations of token use are aligned with tokenomics meant to increase or provide value to the investor.
Key to understanding an STO is defining what a security is. The US Investment Company Act of 1940 defines a security as:
“ 'Security’ means any note, stock, treasury stock, security future, bond, debenture, evidence of indebtedness, certificate of interest or participation in any profit-sharing agreement, collateral-trust certificate, preorganization certificate or subscription, transferable share, investment contract, voting trust certificate, certificate of deposit for a security, fractional
undivided interest in oil, gas, or other mineral rights, any put, call, straddle, option, or privilege on any security (including a certificate of deposit) or on any group or index of securities (including any interest therein or based on the value thereof), or any put, call, straddle, option, or privilege entered into on a national securities exchange relating to foreign currency, or, in general, any interest or instrument commonly known as a ‘‘security’’, or any certificate of interest or participation in, temporary or interim certificate for, receipt for, guarantee of, or warrant or right to subscribe to or purchase, any of the foregoing.“
Thus a security, as applied to crypto, means a token or coin that represents an investment in something that can give a financial return or benefit to the investor.
This benefit can take several forms:
- Dividend for tokens staked or tokens held in a wallet
- Token burn or buybacks to decrease tokens circulating in the open market
- Price appreciation due to asset backing the token appreciating in price
- Representation of ownership of a company along with voting right
Already know what STOs are? Read our Pro & Con article for more infos!
STOs are a good move for the whole cryptocurrency community as it clearly defines the use case of a token and leaves investors or buyers without a doubt about what purpose they bought a token for and what to expect of the team and the company.
Ico-check.com offers comprehensive Security Token Offering (STO) list that provides all the investment information you need.
To access this list go to ico-check.com and click the FULL ICO LIST button.
Then navigate to ADD COLUMN
Scroll down to MISC and select “Is Token a Security” and press the OK button.
Drag the list from right to left to show the column that displays if any of the tokens are a security.
You then click on the “IS TOKEN A SECURITY?” to sort the list.
ico-check.com will continue to improve the visibility of STOs and implement several changes over the next week to put STOs front and center on the homepage.
Your ico-check Team