Crypto’s Holy Grail: Security Tokens. What is the future?
At the most basic level, Security Token Offerings (STO) are relatively similar to Initial Coin Offerings. Basically, an investor is issued with a token that represents their investment. But, in an STO, that token represents a contract that includes securities. Traditionally speaking, securities are fungible instruments that have value and represent either equity or debt.
As equities, securities represent partial ownership in a company. The owners can profit from those securities through capital gains and they can even get dividends for holding them.
As debt, securities represent borrowed money. These securities are bonds, mortgage obligations, and similar documents.
As far as token generation events go, ICOs and STOs are pretty much the same thing. The main difference, of course, is in the nature of the token itself. As STOs feature securities your investment into an STO will be backed by actual assets. On the flip side, the regulations about securities are slowing down the progress of cryptocurrencies.
In essence, STOs have created a chance for new businesses to raise money by generating and issuing digitalized securities in the form of tokens. And, these tokens have to be issued in a manner that is compliant to existing regulations.
Why Is it Important to Know the Differences?
On the surface level, it doesn’t seem too relevant to understand these differences. Projects can seem promising and, if you just follow them and see their potential, you should probably invest regardless of the launch event type.
But, when you stop to think about it, you can actually notice some important differences. In essence, ICOs are here to stay. They are simple, quick and effective. Unfortunately, the amount of failed, or downright fraudulent projects, have shaken the trust that people have in ICOs. For that reason, some people prefer IEOs as they receive backing from competent exchanges.
And, if an average cryptocurrency doesn’t feel reliable enough for you, purchasing securities is a safe way to go. Not only do STOs have to follow strict regulations (of which many are set up to protect the investors) but the coins themselves come with a value attached to them and are less likely to lose that value. As the crypto market is still in its exploratory stage, it’s up to you to choose the journey that best suits your needs.
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