What are Security Token Offerings

What is an STO

An STO which stands for Security Token Offerings is a special kind of token which gives the bearer ownership of shares in the company that minted the token.

It is the tokenization of real world assets which gives the bearer the right to ownership of specific shares in the tokenized company depending on the amount of tokens they have.

how does STOs work?

A company that wishes to sell out it's shares but wants to avoid the old paper work that comes with handling shares and transfer of shares, for this reason the company decides to digitalize it's shares using a Blockchain to automate the processing.
The company now mints a Security Token Offerings representing it's shares which can be broken down into sub units with programs that automatically calculates the Worth of every minted token down to the current dividend for each and it's sub units. In the event of a transfer or a whole of token fraction to a new owner, the system automatically calculates the current worth of the token and pays the new owner division based on the amount of token or sub-token they have acquired.

The change brought by STO to the world of cryptocurrencies and also to the traditional financial world?

Compliance with regulations
While cryptocurrency were traditionally aligned away from the traditional financial system with existing government having no regulatory power over it. Security Token Offerings has legitimized some aspects of crypto through compliance with regulations.

Acceptable collateral
The legitimacy of Security Token Offerings have made it possible for holders of STO tokens to use it as an acceptable collateral for obtaining bank loans.

Solves illiquidity issues
Gives room for early liquidity. In the traditional financial world buying and latter transferring the ownership of shares was always between difficult and impossible within a short term, if the token it to be sold as a whole or fraction, it's worth can be calculated easily and the ownership is transferred. .

Remove intermediary
In the traditional financial world, Security Token Offerings have removed the need for a middle man when conducting transactions involving the buying and selling of stocks or the transfer of token in whole or in part from one person to another.

Protection against lost
While the usual crypto/Blockchain emphasized the protection of your keys as they are usually not retrievable if lost. STO have away of authenticating ownership if the private key is lost using a cap table.

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The difference between STO and ICO, IPO and IEO?

An Initial public offering is what private companies do when they want the general public to buy some of its stocks as a means of generating capital. With an IPO you became a shareholder in the company. Transaction is protected by strict rules.

An ICO is a fund raising mechanism that gives the company organizing the fundraising all the rights and power without the oversight of a regulatory body as it avoids the strict rules of an IPO. This lack of oversight resulted in ICOs being misused for fraudulent activities. With an ICO, you are offered access to a product prior to its released.

IEO is an Initial Exchange Offering, and a fundraising mechanism controlled by a centralized exchange who is in charge of the fundraising. Investors will have to hold the token and wait till it is fully registered and used. Unlike STOs the IEO are advance tickets for a service provided by a company.

STOs are like commodity backed currency but here they are tokens backed by shares, or bonds or real estate titles or stocks. it is also a fundraising mechanism but STOs gives the holder access to ownership of the company and not it's products.

IDO which stands for Initial Dex Offering is similar to an IEO with the main difference being the fact that it is being controlled by a decentralized exchange. An investor in an initial dex offerings is not entitled to any equity in the project they are investing in.

List and explain some types of security tokens?

Equity Token:
An Equity token like the tokenization provided by a Security Token Offering, They are tokens representing the ownership of a specific asset, like stock or shares in a company. Getting an equity token from a company means you are buying shares in that company..
Let's assume we need 5000 Steems to setup a coffee shop and we create five thousand 'shaa' tokens, and sell out the shee token telling it's buyers that each months the profit made by the coffee shop will be split bases on the percentage of shaa tokens they are holding.
In this case, the shaa token is an Equity Token.

Utility Tokens
This are tokens that gives it's bearer access to a product or a service provided by the company who's utility Token you have.
We are about to open this coffee shop, if you should buy this 'tee' token, when the coffee shop is fully opened, you can get coffee with each of this tokens. Each 'Tee' token is one Steem but once the shop opens a cup of coffee will sell at 2 Steem. The Tee token in this case is a utility Token.

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My perspective .

I think some of this tokens are more secure compared to others, the fact that a Security Token Offerings of being watched by regulatory bodies and the project passes through a process of vetting makes it more secured and less likely to be fraudulent when compared to an initial coin offering which I can create from my computer and anyone with the knowledge could create one, making it less secure.

Conclusion

Some fundraising mechanism offer more security compared to others, having a fair knowledge of the various types will help us make informed decisions and we can't be sold a utility Token in place of a security token once we understand this facts.