Security Token Offerings (STO)

Why Security Tokens Offerings (STOs) are Gearing Up for Primetime Digital Asset Tokenization

Kevin
April 3, 2019

It’s been just over a decade since the infamous, and still anonymous, Satoshi Nakamoto released a paper detailing Bitcoin, an

“A Peer-to-Peer Electronic Cash System.”

The ability for people to send money across the globe outside of centralized banking systems has led to a lot of interest in Bitcoin and other cryptocurrencies, alongside a variety of other initiatives.

As Bitcoin began to rise in value, the concept of Initial Coin Offerings (ICOs) really started to take off due to an influx of funding into blockchain projects.

While the ICO world has undergone massive changes due to declining investor money and the presence of scams that scared off some people interested in the industry, a new framework looks to be on the horizon for the future.

The Rise Of Security Tokens

Security Token Offerings (STOs) made their appearance back in 2016 as a tool for fundraising. The idea was to digitize real-world assets like equity or debt.

Security tokens are underpinned by the securities laws in the applicable jurisdiction, while utility tokens given out during ICOs are not a financial instrument, but as a tool for access to an application or protocol.

While many saw the ICO framework as a revolutionary concept, issues started to arise as more authorities regarded them as securities.

STOs And Regulatory Compliance

Nicolson said there is potential for technology and framework behind STOs to be accepted by regulators like the UK’s FCA and the US’s SEC.

According to him, STO’s could cause

“a surge of investment in cutting edge Startups through promoting professionalism and investor protection via this blockchain technology.”

Nicolson indicated how the STO represents a ‘mature’ concept that combines both cryptocurrency and blockchain while building on the access to technological investments that were created by the ICO.

Security token platform Polymath carried out testing of security tokens within a decentralized exchange in February.

Marketing VP Graeme Moore said the tests were carried out to demonstrate how security tokens could be traded that would make them in compliance with regulations, even on decentralized exchanges.

He noted how

“security tokens make it easier for issuers to follow regulations, when compared with the legacy capital markets system using paper share certificates.”