Investors are always looking for the next big trend. In the cryptocurrency world, that trend may very well come in the form of Security Token offerings, or STOs. Unlike what has been attempted before, this new investment vehicle is fully compliant. It is a better business model for companies and contributors alike. More importantly, it can bolster the global appeal of the digital economy.
The STO Concept in a Nutshell
Anyone in the world can issue their own digital currency within minutes. Ensuring that offering is “legal” and “complaint”, is a very different matter altogether. A Security Token Offering focuses on being complaint above everything else. These new instruments represent actual assets, rather than empty promises, hype, and speculation. To comply with the needs of the digital age, a security token offering deal is not conducted on paper. Instead, all of the relevant information is recorded on a blockchain.
The benefit of using a blockchain is evident. First of all, it allows for unprecedented transparency. Secondly, the information recorded on the ledger is immutable, whereas paper documents can be forged and altered. Last but not least, it provides the same benefits as “old school” security purchases, but tailored toward the era of digitization. Investors will still receive the same benefits and rights from purchasing security tokens compared to regular securities.
Not a Cryptocurrency or ICO Token
Although some people may see parallels between STOs, ICO tokens, and cryptocurrencies, the reality is a bit different. A security token should be regarded as a digitized security. It is not something that can be created willy-nilly, unlike ICO tokens and cryptocurrencies. This investment vehicle is backed by real-world assets and value.
What Makes an STO so Appealing?
Unlike cryptocurrencies and ICO tokens, a Security Token offering is not necessarily designed to appeal to Bitcoin enthusiasts. While anyone is welcome to invest in STOs, these products adhere to very high compliance standards first and foremost. In fact, compliance is at the heart of these offerings. All information pertaining to purchasing, trading, and selling STOs in a compliant fashion is facilitated through smart contracts. This technology, which is an extension of the blockchain, allows for automated and fully compliant processes.
STOs will also bring a lot more liquidity to the table. The global securities market is immense, primarily because of its current liquidity levels. Security Tokens can benefit from this existing liquidity and take the concept one step further. As fractional ownership of assets becomes possible, a lot of new investors will be attracted. Additionally, STOs can be exchanged on global security token exchanges. With traditional securities, that is not possible at this time.
Perhaps the most appeasing factor of STOs is how they can be 100% trustless. Every party involved in security token trading is listed publicly on the blockchain. As such, the information is both publicly accessible and immutable. There are no corners to be cut and no advantages to gain from trying to behave badly. Irrefutable mathematics will ensure every transaction is executed perfectly and without failure.