What Are STO’s. Invest With Confidence
Investing in cryptocurrencies is always a risky business if you do not make the right decisions. Cryptocurrencies have a lot of risk factors attached to it
Cryptocurrencies seem like something that just recently appeared, but they have been in existence for a decade now. With the recent boom in their value and overall media hype, they seem like a thing of the past. It was the year 2017 when cryptocurrencies were trending almost everywhere.
It hit its highest at around $20,000 in December of 2017 at the time STO’s first appeared. People who didn’t even know anything wanted to invest in cryptocurrencies and Bitcoins.
Cryptocurrencies always have volatility factor attached to them, with value decreasing within days and sky-rocketing other days, one must be very careful to spend huge assets as investment in cryptocurrencies.
The volatile nature of these currencies always raised questions of security, reliability, and credibility. Different kind of stories has emerged on mainstream media raising questions of the legitimacy of these currencies. Thus making it confusing for people interested in investing, as they are unable to differentiate what is the truth and what’s not!
As risky as it gets, one must ask himself a few questions before investing. One must understand the market as much as possible before making a final decision.
What is STO?
STO, security token offerings are tokens, where investors invest money in exchange for assets like bonds, real estate investment, or funds. Security, in this case, could be defined as “a negotiable, fungible, financial instrument that holds some monetary or financial value.”
When a user buys a token, he or she is provided ownership of the investment product; this is recorded on the blockchain. Users are given a digital certificate to confirm the purchase. STO’s follow the same procedure, tokens are recorded on the blockchain and provided with some asset in return.
Benefits of STO
In recent years, many cryptocurrencies sold investors with the token, that didn’t have any financial interest attached to it. They were merely just tokens, and no one could exchange them for any monetary value.
There were not any regulations or controls. This flaw or drawback created a need for a new type of tokens that are safe and have some value attached to it, so investors don’t end up losing their money.
Security Token Offers were invented seeing this need, STOs offer a replacement for IPO as they came to provide equal opportunities to investors and reduces irregularities that occur with IPO. Revenue streams are predefined that increases the trust of investors.
Other benefits of STO include:
- Credibility: STOs has helped to improve the reliability of blockchain and cryptocurrency industry through its regulation. In ICO, it was chaos, and many people were scammed, and they were not provided with what the platforms promised them.
- Lower Cost and Availability: Traditional Offerings are slow and require proper paperwork to be followed, and they have different layers, STOs come at a lower cost and are available 24/7 online.
- Smart Contracts: Security exist in digital form and are enforced by smart contracts
- A Huge Number of Investors: Being safe and regularized, Security Offering STOs are always open to investors, thus improving the overall trading process and helping the users get rewarded for their investments. These token are usually available worldwide.
STO defining and Regulation
Every country has its laws and regulations when it comes to blockchain technology. There are no uniform laws and regulations that are adopted everywhere.
The SEC (Security and Exchange Commission) in the USA is trying its best to regulate and solve issues related to STO.
In the Decentralized Autonomous Organization (DAO) report, a security offering is put under as an investment contract, meaning ICOs or STOs will be declared as the definition of an investment as defined by the Supreme Court.
According to the Howey Test, a Security Token investment is safe if:
An investment contract is (1) “An investment of money (2) in a common enterprise (3) with a reasonable expectation of profits (4) to be derived from the entrepreneurial or managerial efforts of others.”
Are STO’s better than ICO’s for Investors?
STO’s are considered a better form of ICOs; instead of investors always worrying about their investment; they will always have an underlying return for their investments.
Thus a much safer and less risky investment as compared to an ICO where regardless of how the platform is going to perform you could end up losing your investments as IPO has no such monetary benefits attached to it.
STO’s also have a lesser risk, and they come through a rigorous process of transparency and pass through strict security laws. The platform has to comply with strict rules and regulations before introducing or offering them to investors.
Also, when an STO is backed by real-world investment, the platform needs to worry more than investors as it may end up losing more than investors if the platform fails to return good profits from the investment.
STO’s are also cheaper than traditional IPO’s as in STO the middle man, i.e., banks or organizations are not present. Smart contracts also reduce the need for a lawyer or paperwork costs. Making the process as a whole cheap and faster.
Also being an online currency, it can be traded any time of the day, making it flexible and attractive for investors and people interested in investing in them.
Dan Downey, co-founder, and chief executive of finch firm Securrency, said on CNBC:
“The ability to trade around the clock, with a range of currencies, offers investors both convenience and liquidity.”
“Given a longer regulatory approval process for these assets (rather than none for ICOs), entrepreneurs have a slower path to market. But perhaps a more stable one.”
This kind of characteristics opens a new market of opportunities for small investors who are too small to go to more significant markets to offer their shares.
The main factor of security is good enough to make STOs better than another form of offerings. In the long run of blockchain when cryptocurrencies will be properly regularized and made safe, it will bring about the new era of investments in the digital world of cryptocurrency.
So if a platform is offering STO and you are interested in investment. An STO is currently a better option.
Difference between ICO and STO
ICO’s and STO’s function in a mostly similar way with project selling a token to a group of early investors to fund their project. The difference between an ICO and STO lies within the framework and preparation necessary to be legally consider and STO.
An STO at its core means that you’re legally purchasing digital ownership of a physical or digital asset. This can even be a portion of an asset; for example, you can own 1/5 of a peice of Silver.
STO’s are built to abide by all relevant securities and regulations and operate entirely within legal boundaries.
While an ICO can be generated without any backing or promises, an STO must be crafted and planned. This can be done with an STO issuance platform that will ensure that both sellers and buyers are vetted and that the tokens are issued legally.
That being said, running STOs in this manner is still significantly cheaper for companies than running an IPO in the traditional stock market world. It’s taking the investment requirements and safeguards that we have in the current financial world and bringing it to the blockchain.
The benefits that this brings to both the projects running STOs and the users that buy into them, for example, an STO has gone through rigorous testing for it to be available to investors. Just by being an STO, it raises the legitimacy and trust in the project.
The owners of the project you invest in are highly unlikely to disappear with their funds. Besides, the value of the STO is tied to the value of the company so instead of the amount being based purely on community hype and good marketing; it’s associated to the value of the company.
Finally, because the company running the STO has cleared all necessary regulations, they have no reason to fear a government or regulatory body, which can lead to them being shutting them down. So with STOs, the end-user gets access to legitimate projects with actual assets. The projects themselves and investors can rest easier, knowing that regulatory bodies won’t be chasing them down.
We’ve seen STOs begin to gain popularity as people search for safer forms of crypto investment. 68% are still run on Ethereum, so it isn’t much of a transition from ICOs. Time will tell if STOs will become the preferred form of crypto crowdfunding, but the future looks promising. While regulation may be a downside to some, there are many benefits for the users and the project’s themselves.
It is not easy for new startups to offer STOs to the investors as before offering STOs proper security laws and regulations must be abided for them to be allowed to offer STOs. Platforms have to work upfront and must comply with regulations. They will also be only able to raise funds from investors who have passed some specific requirements.
In short offering, ICO is much easier for companies as compared to STO. ICOs don’t require to fulfill proper security requirements, and investor has no collateral between him and the platform.
How is an STO different from an IPO?
IPO, initial public offerings, issue share certificates to investors taking part in traditional markets. IPO is proper legal, regulated offerings. IPO is offered by private companies that come into the public or traditional market and offer shares to investors.
STOs are tokens whose value might be different, including return as a fund or even ownership of a property.
STOs are assets for the investors in the underlying blockchain technology. Return of investment could be indifferent form rather than just being a shareholder in the market.
In IPOs, companies have to pay high bank fees and brokerage as compared to STOs that are cost-effective, and the main cost is spent on its security and regulations. Also, STOs offer more access to investment market as compared to IPO.
Challenges and Safety Issues
We have discussed security and regulations issues related to STOs; this is both the good and bad for STOs. Security regulations put a considerable burden and challenges for new platforms. They have to set up proper tracking, ownership, and exchange approvals to get the chance of getting support from government-owned organizations.
This is both costly and takes a lot of time. Also, it raises a lot of barrier for small platforms to comply with such regulations, but with changing technology and new trends, these issues would soon be over.
Is Cryptocurrency Investments Safer Using STO’s?
Investing anywhere never guarantees it to be safe or be profitable. STO’s aim to be more reliable than the others in term of overall procedure or legitimacy. One way or the other risk factor is always attached. Observing fluctuation of cryptocurrencies over the past year, one might think that it is no longer safe or profitable to invest now.
Events like bitcoin halving, where the reward value, i.e., reducing the reward value of bitcoins gained in the mining process, also helped in strengthen the claims of crypto being no longer a safe investment.
If you are not familiar with the Bitcoin Halving, we created an article called, What Does Bitcoin Halving Mean, to better help you understand what it is and the benefits associated with the halving.
These factors of volatility and halving events are lucrative for smart investors as they assume that these factors will result in increasing the value in the coming years rather than decreasing. Only time will tell the future value of these currencies. In short, if an investor is smart and knows how much and when to invest, the risk factor is lowered, and good profits could be made!
There are a lot of cryptocurrencies nowadays, and choosing one that is safe and suits your investment requires proper research. Before investing, you must check the origin of the currency, where it is being traded. Are they being traded on safe exchanges? Did they pass through the screening process of getting approval from authorized or recognizable bodies? Did they run an STO?
Your hard-earned money deserves this kind of safety checks to be on the safer side.
Can cryptocurrency get stolen?
Cryptocurrencies are one the securest form of online technologies. , using decentralized systems, i.e., users being the central entity instead of a single organization.
STO’s can provide an additional layer of security.
As cryptocurrencies became popular; attracting a vast number of users, it became vulnerable to cyber-attacks. A lot of people lost their coins due to these attacks in recent years. Remember, once you lose bitcoins, there is no way you could get it back.
So, one must be very careful while using or mining bitcoins online on blockchain technology. It’s the world of the internet where no system is safe enough to be called 100% risk-free.
Attacks were usually made by exchanges of digital wallets. Cryptocurrencies and blockchain as a whole is a safe network, so these attacks were successful due to lack of proper security measures that were not taken by the user before using the system.
Wallets were compromised using their keys, and all the currencies were drained from the wallet.
Something online will always be open to a hacker or spamming attacks; now, you must be wondering about the solution to this problem.
You need to think outside the crypto space when it comes to your security. Yes, protect your seeds, passwords etc but protecting your identity is often overlooked. That why when it comes to security we always recommend our battle tested tool, ProtonVPN and ProtonMail to encrypt your online activities.
Next, as simple as it seems the best and most straightforward way to store your wallet keys is to the right it on the piece of paper. Yes, you heard it right; an attack on the internet can steal your online data but not the piece of paper you have kept in a secure place. These kinds of simple acts can save you from losing your hard-earned digital currency!
Recommended Crypto Tools
Is crypto used by Criminals?
Cryptocurrencies have also been alleged to be used in criminal activities, like money laundering and online scams. The concept of anonymity attracts the criminal world, but in converse, the underlying blockchain technology used in the process of mining is safe and holds a record of transactions. So corrupting this is highly unlikely but not impossible.
It seems that this topic is used as a scare tactic as the amount of crypto possibly being used for illegal activities is only a fraction of what is being used within the current Fiat system.
Cryptocurrencies are not inherently safe, but with proper regulations and control, it can be made safer in upcoming years.
The point of all this discussion is that we can discuss investment opportunities in cryptocurrencies. When a new technology is announced, companies are looking for initial investors to get funded for their project. ICO’s and STO’s are two of the most used offerings to let the people invest in the new platform. In both STO and ICO, investors are exchanging money for some value in return.
The question is, what option will you choose?
Final Thoughts On STO’s
Security Token offering came into existence on April 10, 2017, by Blockchain capital (BCAP). This STO raised $10,000,000 within a single day.
Thus laying the foundation for a new and advanced form of offering for cryptocurrency platforms.
Since then, they have evolved, and now they exist as a safer and better option to invest early in new projects.