Hello Everyone |
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Asalam Alikum! I hope all Steemians are doing well. I pray that you enjoy your life to full with your friends, family, and loved one. Today I'm here to participate in the Season 6 Week 6 contest by SteemCryptoAcademy. The topic decided by the team is "Security Token Offerings STO". I will share all of my knowledge of this topic with the community members.
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In your own words, define the STO by explaining its process (how does it work?). |
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Security Token Offerings (STO) is a new form of increasing capital but through blockchain and cryptocurrency. It is similar to Initial Coin Offerings ICO in which a token or coin act as investment. But in STO, a security token represents a contract or ownership of real-world assets such as bonds, funds, stocks, and REIT. It is the most innovative way of blending security tokens, digital tokens and traditional equity.
In STOs, a startup company raise funds by issuing digital tokens by complying with government regulations. These type of tokens require large-scale regulations which are not required for ICO and is the reason they are not available or traded on regular exchanges. They differ from ICO as they are holding monetary value of real-world assets.
Let's take an example for better understanding of STO working. In traditional startup or running business investments, we buy a stock of a company and it's ownership information is then written on a digital certificate such as PDF. But in STO, the process is same just it differ in recording of ownership information where information is recorded on the blockchain because it is irreversible and almost impossible to change and the certificate is issued as a token.
STO is the digital representation of real-world assets which help tokenization of business assets. These tokens came after the ICO bubble burst in 2018 that dropped the market cap by $750 billion. They were created to be fully regulated by appropriate authorities. The STO is different from IPO as issuers can now build a company or deploy already established business with smart contracts. These smart contracts are legal contract in two parties and is stored on the blockchain where public can see it.
What does STO bring to the world of cryptocurrencies and also to the traditional financial world? |
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STO is ready to drive the next wave in the blockchain and cryptocurrency. It has many benefits that will let people adopt cryptocurrencies and blockchain in future. STO has positively impact financial market and the world of cryptocurrency. They have changed the way of investment and issuing digital certificates. Below are the benefits of STO that could further change the cryptocurrency and financial markets.
1. Credibility
STO will add credibility to the crypto projects because people will be aware that the project is registered with the Securities and Exchange Commission (SEC) and whether the funds are raised using STO or not. It will make the investors relax that their money is safe and in right project.
2. Legal
If a project is fund raised through STO, it will have to go through the government regulations which result in attention of the investors. As more projects come with proper regulations, people will start believing on cryptocurrency even more. The FUDs and scams will be more less.
3. Traditional Investors to Crypto
Because of regulations, credibility, trust, and reliability, the traditional investors will move to cryptocurrency. It will reduce the stigma around cryptocurrency and will attractive the investors to trade in secure environment. As more traditional investors will come to crypto, it will increase the capital in the market.
Source Pixabay
4. More Startups
No only in crypto but STO will also affect other financial markets. It will encourage people to launch more new startups because now they will not rely on raising funds from accredited investors only.
5. Actual Ownership
In ICO, the investor was given the utility token which acts as an IOU, but in STO the real actual ownership of the real-world assets will be given to the investors that build trust.
6. Low Risk and Low Fees Model
STOs are much more cheaper than the traditional investing. The reason is they eliminates the intermediate and the paperwork and as they are programmable by nature, it impacts more on the low fees. Second is STOs are very low risk investment model than ICO because of regulations involved. The projects have to meet SEC requirements of transparency in the United States for people to believe them.
These are some of the positive impacts that STO has and will have on the cryptocurrency and financial world. The investors, startups, and businesses will involve more in cryptocurrency and thus increase the capital.
What are the differences between STO and ICO, IPO and IEO? |
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STO vs ICO
The major differences between STO and ICO is the regulations and the assets backed by real-world assets. The Initial Coin Offerings (ICO) were designed in a way that they raise funds in an unregulated environment and Security Token Offerings (STO) are designed to raise funds in regulated environment. The reason why STO came is because the frauds in the ICOs due to it's not secure nature. The new ICOs take the money of investors and run away and there is no clue about them that help to find them. But in STO, each project will go under the regulations of SEC around transparency.
ICO | STO |
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1. Raise funds in unregulated space | 1. Raise funds in regulated space |
2. No collateral | 2. Backed by real-world assets |
3. Utility tokens given act as IUO | 3. Actual ownership given |
4. Less trustworthy and credible | 4. More trustworthy and credible |
5. Not monitored by regulators | 5. Monitored by regulators |
6. No investment transparency | 6. Investment transparency |
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IPO vs IEO
Initial Public Offering (IPO) is the issuing of shares certificate on traditional market. In other words, it is the offering of shares of a private company or business to public when they want to raise funds. While Initial Exchange Offering (IEO) is the token or digital asset sale through a well established crypto exchange. It is usually available for only exchange's users and it helps to raise capital for startups or businesses. The IEO projects are directly allowed to list on an exchange of high liquid market. The best thing is it let the exchange users buy the new token and the project team to raise some capital as new tokens are always the attention point of exchange users.
IPO | IEO |
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1. Open sale of company shares to public | 1. Sale of startup company token to only exchange users |
2. Strict rules of financial regulator | 2. Exchange rules to follow |
3. Profit making in multiple ways | 3. Less profit than IPO |
4. Complexity and high cost | 4. Exchange listing fees involved |
5. The high degree of trust required for company | 5. Good team, whitepaper, and initial listing fees |
6. Need to follow the regulations | 6. No worries about regulations and crowdsale security |
Difference Between STO, ICO, IPO, IEO
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List and explain some types of security tokens? |
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There are four types of Security Token Offering (STO) i.e. Utility tokens, Asset-backed tokens, Equity tokens, and Debt tokens. The explanation for each of the security token is below:
1. Utility Tokens
A utility token is a token with value in use of the system. It helps startup, companies, and businesses to raise funds for their development of blockchain project. They can be exchanged or used to purchase other tokens, cryptocurrencies or goods and services.
2. Asset-backed Tokens
The tokens that are designed to be backed by real-world assets such as stocks, shares, bonds, and REIT are called Asset-backed Tokens. Not only the above assets but real world diamonds and real estate are also example of it. These type of assets give user the ownership of a real object in digital form.
3. Equity Tokens
A token that shows underlying asset's ownership like of a company stock is known as Equity Token. It give power of voting rights, dividends or even both to the owner of the asset. The Equity token is different from traditional stock that it's method of recording the ownership is different. The Equity token's record is put on the blockchain while the traditional stock record is put on the database and then records are printed on a paper certificate.
4. Debt Tokens
The tokens that accrue interest and are equal to the interest rate. These tokens act as short term loans given to the company by the investors. The company will return it with the interest mean little more amount. Their contract is recorded on the blockchain network that acts as a security for the debt. Debt Tokens price is dictated by two factors i.e. risk involved and dividend. Moreover, there are two types of Debt tokens i.e. stable debt token in which interest rate is stable and second is variable debt token that shows variable interest rate.
Do you think these types of tokens are secure and reliable? if you want to participate how does it work? |
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STO is the highly secure and reliable than ICO, IPO, and IEO. The reason is they are backed by real-world assets and the project has to go through strict regulations of SEC for security, transparency, and trust. These type of tokens must follow the federal laws which if not comply, must face serious consequences such as project potential derailment and penalties.
STO is not easy for most of the businesses because of tough regulations, complexities, legal and tax nature. Due to these things, most businesses go with ICO but as the trust of people is shifting towards more secure platforms and projects, it is becoming necessary for businesses and startup companies to move towards STO projects. The major impact of security was when ICO bubble burst in 2018 and at that time STO was introduced. The projects and startups are more trustworthy, reliable, and secure if they raise funds and capital through STO.
Things to consider before launching an STO
If you have decided to participate in it, you need to have complete knowledge about it's process and what things to consider and how to launch an STO. Below is detail on things to know before launching an STO:
Source Freepik
1. Tokenized
It is important to know what is being tokenized. As security token offering represents real-world assets and interests such as equity and debt, the asset type that is being tokenized will require legal documents as well as holds levels of appeal. It is also important to decide the type of interest before launching an STO.
2. Jurisdiction of the token
It is necessary to have right jurisdiction of the token that follows assets' location, laws and regulations of that area, interest classification being tokenized, marketing strategies, and founders' location for tax purposes.
3. Corporate structure
There must be proper corporate structure and governance before launching an STO. The issuance must be authorized on issuers' corporate documents. There are other laws and regulations that must be properly followed. If it is in USA, the allowed limit for the investors is 99.
4. KYC and AML
It is important to have AML and KYC because most of the countries now have Anti-Money Laundering (AML) and Know Your Customer (KYC) requirements. Both of these are implemented on all businesses in those countries so try to focus on them.
4. Tokenization Platform
Last thing to consider is choosing the right platform and the recommended ones are Securitize, Token IQ, Harbor, Swarm, and TrustToken. There are many other platforms like Tokensoft and Polymath but best ones are mentioned above. You must decide which platform suits you because all of them have different approach. The funds raised percentage, support post-launch and partner price are the things you need to look before choosing a platform.
How to Launch an STO?
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Step 1: Preparation
You must have a solid project with strong idea that engage investors. In this step, it is recommended or you can say necessary to take legal advice for laws and regulations from an expert. You must consult an expert for how token will gain value. In general, the value of all tokens are based on features, purpose, and what role it will play. It is good start to first decide these things and then dive into second step.
Step 2: Pre-STO Launch
It is important to introduce your STO to the market before it's launch. It means you have to do the marketing and advertisement to maximum crypto forums, communities, and websites. You need to prepare proper whitepaper, token structure, milestones, and team's information. It is necessary to choose the right exchange with which you are partnering because your token creation process will mostly rely on it. So do proper research and then choose good exchange. I have mentioned few above you can do research on them according to your STO project.
Step 3: Launch STO
This is the most crucial part of an STO launch where you run a crowd sale. It is the time when your company will sell it's tokens to the public in order to raise funds for the startup project. You need to publish your website's selling portion during this step. Make sure to highlight selling buttons and sections. If the right buttons are not highlighted, it will make difficult for the investors to do the KYC and AML and purchase the tokens. So try to focus on these sections of your website. Further, you must give proper real-time support to the investors because they may need help during this process.
Step 4: Post-STO Launch
The last step is about after crowd sale is over. Now it's time to build you product and application on blockchain. Make app's interface user-friendly, secure, and strong. It is important that the product you are building will support your newly-launched security token. So hire those developers who have complete knowledge and experience in blockchain and STO development. If you can afford a team of developers than go for it because it will benefit you for sure.
During the product development, it is good to engage with the investors. You can provide a roadmap on your website that shows what is going on with the product. It will gain more trust of the investors and they will be excited to see the product. After you launch your product, give proper technical support to your investors because they will ask solution for the issues they face if any. You can hire a team for technical support that will be live 24/7 on social media pages, email contact, and on website live chat support.
This is all from me for the "Steemit Crypto Academy Contest / S6W6 - Security Token Offerings STO". I invite @samminator, @ranartblog, @hunzlakhan, and @theentertainer to participate in this contest.
Assalam o alaikum brother.
I hope that you will be good and enjoying the time with best of the health.
Your explanation about the given topic are nice and clear as it make every reader understand well about every point that you have explained here.
You are veri right brother, the STO has surely improve the trust of the traditional investors on the cryptocurrencies and the Blockchain technology as well.
This is because of the fact that the STO are much reliable as they are legally approved by the government and the financial authorities as well. That's why, it is much safe.
Thanks for sharing your Quality post with us and wishing you a very happy contest ahead 😊
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Thank you my brother. I appreciate your valuable feedback on my post. I was waiting for you to do a comment on my post and today you did. Thank you :)
Happy New Year 2023 💕💕
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Thanks a lot dear. May this year bring more blessings in our lives. Stay blessed always 💕
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Ameen 💕
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Wow just amazing and a well organized article regarding the STO, you have explained everything with proper details.
I agreed with you that traditional investors will also head towards the crypto investments and they will be involved in the crypto era through the blockchain smart contracts.
You are right for the launching of any product there is need of a proper management and start. Firstly trust should be built of any sto with the involvement of rules and regulations and it should be approved by the government authorities then it will work more smoothly.
Thanks for sharing and giving your thoughts and reviews.
Regards: @mohammadfaisal
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Thank you brother for appreciation. I always try to do proper research on a topic and then write. But still there are some missing points. However, thank you again :)
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You are welcome bro please have a look at my blog post as well. Thanks
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Sure brother 💕💕
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Thanks see you there 😊
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We support quality posts anywhere and any tags.
Curated by : @steemdoctor1
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Thank you :)
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There are various things that make the cryptocurrency world grow and are in demand by many people, besides being on top of blockchain technology, we can also see various features being offered to increase public trust, especially STO which has many benefits for its users,
By reading your publication, my understanding also increases. I hope you sucess with the challenge 👍👍👍
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Thank you for your valuable comment. These type of comments motivate me to improve my content more.
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You are welcome friend, your have a great knowledge about it... 👍
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Upvoted! Thank you for supporting witness @jswit.
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Thanks for sharing with us. Regards!
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Yes this week's contest increased my knowledge because I did proper research and found new things. I am thankful to SteemitCryptoAcademy for conducting such contest as it helps us to have more information on blockchain, cryptocurrency and other topics.
Thank you brother for your comment :)
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Thank you, friend!
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You have written a detail entry as regards security token offering STO, indeed you knowledge about the topic can not be questioned. I only knew about three types of STO but from reading through your blog i have found out another type which is the utility. Thanks for such a wonderful presentation, i have learnt a lot. I wish you success my friend.
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Thank you my friend. I appreciate your time and comment. Let's follow each other and start growing this community :)
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I must commend that you have presented a well detailed and educative content for us dear friend.
Your points have made many points even clearer as we were made to understand that Security Token Offerings represent an exciting new opportunity for investors, particularly those looking for more direct access to alternative investments. However, it is important for investors to research and understand the risks before getting involved in any STO.
Yes, you are very correct friend, STOs provide a number of advantages over traditional forms of investing, such as increased transparency, liquidity, and accessibility.
They are also an attractive option for companies looking to raise capital quickly and efficiently. With the right strategy, STOs can be a great way to generate returns and grow wealth.
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Thank you for your valuable comment. I appreciate it :)
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