STO: Why It Is The Future & When STOs Become Profitable
Over the last few years, companies have felt that it’s becoming increasingly difficult to reliably raise capital needed for expansion. Subsequently, founders began to seek fundraising methods beyond the traditional channels.
Fortunately, the timing was just right for an innovative solution.
Blockchain technology, quickly became an obvious solution to the many challenges faced within the financial industry. According to Don & Alex Tapscott, authors of Blockchain Revolution (2016), “The blockchain is an incorruptible digital ledger of economic transactions that can be programmed to record not just financial transactions but virtually everything of value.” By allowing digital information to be distributed but not copied, blockchain technology created the backbone for a new type of internet that would allow the use of digital currencies, Bitcoin, and other innovations.
Shortly after, Initial Coin Offerings (ICOs) were developed.
ICOs offered a new type of fundraising mechanism that made it possible to digitize access to start-up services and assets, and offer such services/assets to the market in the form of tokens. The idea was revolutionary, and ICOs gained a lot of popularity between 2017-2018, raising over $11.4 billion with 3,000+ successful Coin offerings, mainly in US, Switzerland, Russia, and Singapore. In time, plenty of blockchain media coverage shifted to ICO news and the fundraising mechanism eventually dawned IEO lists.
However, ICOs had a few serious flaws:
- They weren’t reliable and safe
- They didn’t fully comply with existing regulations on securities
- They didn’t protect investors enough and so many ICOs were mere scams
Because of these issues, a lot of companies realized that, although ICOs were revolutionary, they weren’t perfect. The world was in desperate need of a superior solution.
Why STOs Are Far Superior to ICOs
“STOs have completely changed the game by fixing all the problems with ICOs, in addition to offering even more flexibility. The tremendous experience accumulated by investors during the ICO boom made everyone realize that it’s crucial to always comply with existing regulations on securities.“ Mr. Steinberg has said in an interview.
In a sense, STO technology is specifically designed to open the door to safe global investments, revolutionize capital markets, change the way conventional securities circulate, and provide businesses with a simple yet efficient tool to access the global capital market. Marvin Steinberg explains that STOs also enable much more productive relationships between entrepreneurs and investors, thereby fixing another big problem that ICOs had: not enough protection for investors.
- The ability to raise more funds in record time without the hassle & uncertainty of traditional fundraising
- A cost-effective way to get instant access to a worldwide pool of investors and virtually unlimited funding opportunities (hundreds of times larger than the ICO market)
- Unprecedented freedom because, in contrast to stocks, STOs are globally liquid and not anchored to any trading platform
- Peace of mind and lower risk because of cutting-edge blockchain technology and comprehensive regulatory controls that make scam almost impossible
- The flexibility to raise funds not only for blockchain-based projects, but also for traditional enterprises, IT companies, and even general startups
- Measurable and regulated investment risk, with guaranteed respect for the rights of investors. In contrast to utility tokens, a security token (Type #2) is a full-fledged instrument investment, since it’s secured by a particular asset
- Instant online access to investment markets, and the ability to become “globally liquid”, thereby not being anchored to any trading platform (unlike traditional stocks and stock markets)
- Better protection for both the issuing company and the investor because of verified investor eligibility and automatically secured investor rights
With a transparent, globally connected market enabling instantly transferrable, liquid investment contracts for issuers and investors both, we may be seeing the creation of a new standard for public security offerings. The infrastructure is now in place, but the innovation of security tokens does not stop with just liquidity and revenue distribution models.
Security tokens will enable a vast new array of investment capabilities. Individual investors of certain security tokens could choose to sell off either a portion of their interest or the dividend portion of full equity in a secondary market. Brokers could bundle sets of voting security tokens and sell them into international markets. A minimum accumulation of shares could give access to various system benefits or constitute as a membership to a club. Or even decentralized autonomous organizations, companies which exist entirely within smart contracts on a blockchain, could have governance mechanisms which include human shareholders coding voting preferences directly into the contract. The opportunities are only limited by the imagination.
The concept of autonomous and distributed financial services is somewhat experimental and volatile at the moment.
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