STO is a new type of crowdfunding that was created to solve some of the typical ICO problems, such as high amount of scam, lack of regulation and limited investor’s rights.
Differences between ICO and STO
ICO companies usually sell so-called utility tokens that essentially act as an obligation of the company to deliver it’s services to the users as well as give users the to use services or products of the company that they invested. Unlike the company’s shares, utility tokens do not grant any control or right of ownership. This approach is a loophole that is utilized for the companies to evade regulation by the Securities and Exchange Commission ( SEC ). SEC remarked more than once that tokens should be viewed as a security and therefore be regulated like any other investment. In STOs or Security Token Offerings, all sold tokens are securities that act similarly to shares.
It is expected that security tokens and Security Token Offerings will be the next trend in cryptography.
STO, unlike ICO, never bypasses laws and regulations, it only removes financial institutions and intermediaries from the process. This is due to the fact that security tokens are subject to the federal rules of securities – they come into effect on the first day of the STO.
Advantages of STO over ICO and IPO
In spite of the fact that STO does not give the same amount of freedom as ICO, it has its own significant advantages that can attract those investors who are frightened off by the “freedom of action” in the ICO. Undeniable advantages of STO in comparison with traditional investments are:
- Lower commission.
- Faster processing of transactions.
- Free market impact.
- Expansion of the investor base.
- Automated transactions.
- The absence of manipulation of financial institutions.