Security Token Exchange: STO and Its Benefits

Security tokens offerings (STO) are reliable digital assets tokens solutions in the crypto-verse. It is important to notice that unlike Initial Coin Offering (ICO), STOs are backed by real-world assets, and these tokens are compliant with government regulations. So, it does not suffer from financial authorities and their interference while offering and trading asset tokens.

With the growing popularity, there is a rise in demand for reliable security token exchanges among players to trade currencies in return for fiat currency or other altcoins. If you are new to the cryptocurrency industry, asset tokenization, and its underlying blockchain technology, then it would be challenging to understand STO exchanges.

Take a look at our article. This time we will show you what it is, how it is utilized, its major features, and what we expect in the near future from STO. Let’s dig into this theme.

What Are Security Token Offerings?

First, we should find a definition of Security Token Offering (STO). It is a financing option that can be used to issue an asset-backed token and show it to the whole crypto community. A token is a type of security that is made following laws. That is why one of its crucial options is trustability.

The firm needs to consult a lawyer and accountant about making the business structure as well as financial details public. It is a crucial measure needed before the token sale. The identity of the investor also needs to be defined. These measures are needed to pass regulatory measures like Know Your Customer (KYC) and Anti-Money Laundering (AML). These regulatory hurdles may seem a bit complicated, but they ensure that all participants are following the current regulation.

Apart from that, STO can also enhance asset liquidity. With the long lockup period, the property is difficult to trade in the market. But now, we can utilize technology to segment the unit into numerous tokens with distributed ownership and sell to the public through the network. It helps to release the value of illiquid assets and facilitate liquidity.

Although initial coin offering (ICO) serves as another way of financing, as stated by Bloomberg, nearly 78% of all the products in 2017 were frauds, and only fifteen per cent of which did not stop and developed their projects. It is important to note that less than half were evolving the business in a successful manner. When compared with ICO, rolling out STO requires a longer and more intricate procedure. But for the business and its investors, due to the fact that STO is backed by assets that give the market more confidence and is anticipated to increase.

What Is Security Token?

It is not difficult to find information and learn more about security tokens. If you divide it into two words, security means a certificate with intrinsic monetary value that can be traded, just like asset and bond. Token means a voucher that is utilized in the stock exchange for goods or services. If we mix these two words, we have a digital token with the value of a tradable asset as a digital type of security.

The Howey test can help to identify whether the token is classified as security based on four rules. These include If there is money involved in investment, whether there is an expectation of profits, also in a common enterprise, if there is effort involved from a promoter or a third party, then the token itself can be deemed as an investment contract, a form of security.

In a generalized view, most of the tokens in the market are utility tokens. People bought it from the crowdfunding of startups for later access to products and services. The value of a token derives from the faith of the investor towards the organization.

Just like a traditional security, a security token’s value derives from the coin behind, a consumer can get dividends from the token, so it can be seen as a digitalized security, and it is consistent with the law as well.

A security token is nothing new but a digital form of tradable security stored on the blockchain, leveraging the integration of top-notch solutions and security.

Key Features of the STO Exchange

In fact, STO and its options can provide multiple key options to customers. Check them out below:

• Here are the built-in features that you need to have in your token exchange platform;
• Connection to external securities exchange to increase liquidity;
• Escrow system;
• Multiple Currency Transaction;
• Support different languages;
• Payment gateway integrated.

As an STO exchange development platform, it also may provide:

• Highly secure with encrypted access to customers as well as two-factor authentication, white list and CSP protection for all accessible features.
• Customizable service to meet your requirements with exceptional UI/UX;
• DNS failover, Geo IP Routing, Distributed Server Architecture that will keep the securities exchange accessible to customers.

Security Tokens Offering and Its Near Future

We can definitely say that these assets are urging hefty waves in the financial industry, also creating an impact in other areas of our lives. The integration of security token offering (STO) may boost the segment and ease cryptocurrency mass adoption.

For players, what they truly worry about are the fundamentals, the return of investment and liquidity. When we look at the property market, especially the commercial block, it requires a high entrance capital of hundreds of thousands or even millions. In a long-term period, the market participants depend on the market roller coaster as it rolls on. So, it makes trading a tough process.

With STO, we can segment the property and sell it as tokens. All transactions stored on the blockchain trading services are quick and made without any delays. A small risk and investment cost can drive investors’ attention, encouraging the growth of the whole sphere.

Startups gain liquidity through funding such as private placement. However, this kind of share has limited liquidity since it is hard to trade on different markets with different rules and regulations. As institutional investors, they may need to store for a few years. But with STO, the liquidity can be increased as the tokens can also be traded by retail investors and even on a secondary market. This is a great solution for all participants.

Some analysis predicts the STO market worth 78trillion USD with the high expectation of derived commercial value. A number of startups or even institutional players see the potential of STO and are actively discovering the possibility for investment.

In July 2019, BlockState published the results from an investigative study (BlockState 2019), which examined more than 100 completed, ongoing or planned STOs.

The primary findings of the study revealed:

• STOs are multiplying in number. For example, in 2017, only 5 STOs took place, with a total issuance volume of $65.6 million. In 2019 there were already 55 STOs with a total volume of USD 453 million.
• The most common asset class is equities: The most significant part (75%) of the finished issuances were conducted for company equity.
• The financial sector dominates the tokenization market: the financial industry was responsible for 77% of all STO funds raised. Real Estate was a close second, accounting for 11% of all funds raised.

The World Economic Forum estimates that 10% of global GDP will be stored on the blockchain ecosystem by 2027. Based on this prediction, Finoa company has estimated that the market of globalized tokenization could reach $24 trillion in financial assets by 2027.

Although the tokenization of assets is still in its infancy, this evolution of traditional investment processes could disrupt the way people invest. By using tokenization and STOs to their advantage, investors can expand their portfolios, increase dividends and invest in new global companies.

However, regulators may at any time introduce additional rules specifically for this market, which may make it unattractive for both consumers and issuing companies. The probability of such a scenario is small, but this must be remembered. And different countries may respond differently.

In Conclusion

Rounding up all thoughts on security tokens offerings, we have answered the most important questions. This blog post aims to guide you through the fundamentals of this type of offering and Security Token Exchange, its major options, and explore its potentials.

We hope this article was helpful for you, and it has sparked a few ideas. That is all for now. Stay tuned for more helpful content!