Updated: Apr 6, 2019
Security Token Offerings (STO) is a term that’s echoing all around the crypto space these days. If you are interested in disruptive technologies, such as blockchain, surely you must have heard about it. A lot can be searched on google, however does it really align founders’ interests with that of investors’? Or is it just another fancy term for ICOs?
Not really…ICOs and STOs are intrinsically different. Putting it in the most simplest way, ICOs would sell their tokens to fund their projects. Investors get tokens in return with believing in speculation of price appreciation created by founders. There’s nothing wrong with ICOs in my opinion, as far as founders are absolutely transparent about their business activities. I would stress upon ‘transparency’ here. Definitely there are many promising projects out there who speculate price appreciation of their tokens by factoring in all possible economic indicators. But what if, token price doesn’t appreciate? This is the question, any potential investor would need an answer for.
This is one of many reasons, the concept of STO was introduced, not really long ago. STOs declare their tokens sold to fund the project as ‘securities’ entitling holders/investors for dividends from the company. It’s really as simple as that. There’s nothing more to it and there isn’t any need to complicate it either. As they say ‘simple is beautiful’. This takes us back to the investors’ fundamental question that remains unanswered by ICOs ..
“What if, token price doesn’t appreciate?”
In case of STOs, let’s say speculative token price appreciation doesn’t see daylight, investors’ would still get their returns in the form of dividends. A quick reminder: dividends are “a sum of money paid regularly (typically annually) by a company to its shareholders out of its profits (or reserves).” Does this make investors, the share-holders of the STO company? Absolutely! What this also means is by investing into STOs, investors’ interests are protected by 2 extra layers of security: a. tokens backed by company’s assets such as shares; and b. profit sharing.
Of course risks are inherent to businesses, and by no means, I am advocating that STOs can never fail. Implying the 80/20 principle, 80% of STOs would fail, similar to any other business.
If you aren’t aware, I am COO, Project Owner & Developer of MONET Blockchain Project. We started as an ICO, but by the time we were a year old, my team and I realised that transforming into STO is much more fair deal and most importantly, this transformation would align founders and investors’ interest. However, apart from the project funding aspect, our token is a utility token or in other words it will fuel our Dapp (decentralised app). But we need to fund the project too, by selling our tokens to certain extent within the project and business lifecycle. Therefore we adopted a fairly new concept where token will be used as utility & security both. It’s called ‘Utility-Security’ structure. I read this term first by Espeo Blockchain used in their blog post. A valid argument would be “how can both structures be embraced by one token?”. This calls for another post in itself, that I would be writing soon.
So… are STOs of any value?
Definitely yes, if investors are looking for transparency, regulatory compliance, liquidity, global reach and trading capability, then welcome to the world of STOs that would soon be booming with all glory :)
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About the Author
I am an entrepreneur, researcher, analyst, crypto-enthusiast & believer. I am also one of the founding members of monetorb.com — a blockchain platform (under-development) connecting patients seeking 2nd opinion on their primary diagnostics with consultative healthcare, across the globe. Like me content? 🙂Follow me on Twitter & Telegram.
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