Review The Possibilities Of Switching From Initial Coin Offerings (ICOs) To Security Token Offerings (STOs)

A Review On The Possibilities Of Switching From Initial Coin Offerings To Security Token Offerings

Starting a business or enterprise usually, demand a lot including capital. The ingenious nature of entrepreneurs has helped developed a means around most business start-up’s limitation as in the case of crowdfunding to help curb capital unavailability. In the business world, Investors usually offer the public an opportunity to be part of the project by giving out ownership rights through the sales of shares. This is known as the Initial Public Offering IPO.

In recent times, public offerings have formed the central focus of investors to raise money. Usually, the project is targeted to offer a great or promising value backed with existing market needs to address, it is on these bases and more that investors tend to commit their resources to such companies. Same funding system is also existent in the cryptosphere and it is referred to as The Initial Coin Offering which is a system in cryptocurrency that enables cryptocurrency project developers raise funds for their project.

Initial Coin Offering

According to Investopedia,

“An Initial Coin Offering (ICO) is the cryptocurrency space's rough equivalent to an IPO in the mainstream investment world. ICOs act as fundraisers of sorts; a company looking to create a new coin, app, or service launches an ICO. Next, interested investors buy into the offering, either with fiat currency or with preexisting digital tokens like ether. In exchange for their support, investors receive a new cryptocurrency token specific to the ICO. Investors hope that the token will perform exceptionally well into the future, providing them with a stellar return on investment. The company holding the ICO uses the investor funds as a means of furthering its goals, launching its product, or starting its digital currency. ICOs are used by startups to bypass the rigorous and regulated capital-raising process required by venture capitalists or banks”.

Many frauds have been linked with Initial Coin offerings, a development that has stirred a downward interest in project participation. A lot of interest groups are suing for an alternative which has stirred stakeholders to revolutionize ICOs as Security Token Offerings.

Understanding Security Token Offering

In the business world, thousands of companies trade their shares on various stock exchanges popular amongst which the New York Stock Exchange is one. Security token offering is the initial coin offering equivalent which aims at transforming tradable assets like equity and fixed income into digital assets that are operated and anchored on the blockchain technology. With STOs, digitized token of the company’s asset is sold to members of the public through crowdfunding.

Which Of The Offerings Should Investors Embrace?

ICOs experience a huge success in 2017, revenue which increased considerably in 2018 and with this progress, there is still a clamor in the cryptosphere for Security Token Offerings that has been on for well over a year now.

Although we’re seeing interests in top companies in the blockchain technology such as the financial giant Intercontinental Exchange launching of BAKKT which aims at integrating financial brokerage firms, many analysts wonder if these would be a channel to tokenize some of the assets traded on the stock exchange. Should STOs become a viable and open choice, investors would be sure of security of their investments as it’s the tokens of already established companies and not any random projects that they would be paid for thus minimizing or eliminating the risk of fraud. There is also the general belief that stability would be guaranteed as these companies are generally under established financial regulations.

The procedure involved in Security Token Offering might, however, be complicated as permissions may be sought from the company’s shareholders who have a huge say in the scheme of things. This condition might place an embargo on the realization of the guaranteed investment opportunity achievable by STOs when compared with ICOs.

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