What is the definition of a Security Token Offering (STO) ?

STO stands for Security Token Offering. A security token offering is any asset or security that has been digitized on the blockchain, a digital token representation of a “security” as defined by the U.S. SEC (Securities and Exchange Commission). A token represents an entitlement to ownership of the issuer’s asset, equity, or debt security.

How does an (STO) security token offering work

A security token offering works by creating a digital representation of an asset on the blockchain. Giving this “digital representation” or “token” physical world value since an asset in the real world backs it. For example, using U.S. Commercial Real Estate as an asset to then digitizes as a security. You can now use these tokens for crowd funding as well as trade them internationally. People realized early on that the purpose of all of the SEC and FINRA licensed intermediaries within the industry was to enforce the transaction rules. Now their roles could be replaced with blockchain technology saving both the fund and the investor time and money. It is undeniable that the underlying “blockchain” technology is revolutionary.

Now when you combine crowdfunding platforms with innovative contract technology on the blockchain, you have the potential to raise unlimited amounts of money worldwide and remain 100% in compliance with SEC rules.

Benefits of an STO security token offering

Secure 

Being that STOs are backed by tangible assets on the blockchain providing true value to your security token. An STO provides SEC certification as well as the security of blockchain technology. An STO is fully transparent yet secured by blockchain technology.

More Efficient Liquidity

The primary benefit of tokenizing traditional private [placement] securities is to improve investor liquidity. While it may take a few more years before the liquidity is similar to that of the public markets, it is not a question of if but when.

International Trading 

Another benefit of tokenization is to facilitate easy cross-border transactions. It is difficult for small global investors to participate in the U.S. public markets and impossible to participate in the private markets. The STO makes it possible for investors around the world to participate.

Security Token Offering (STO) vs. Initial Coin Offering (ICO)

There is a big difference between a Security Token Offering (STO) and an Initial Coin Offering (ICO). Security token offerings require much more work with compliance agents such as the SEC. In contrast, anyone can participate in an ICO with little to no regulation in most cases. Most wealth managers and investors worldwide still do not understand that the only thing in common between the STO and ICO is the underlying blockchain technology. This is an important distinction that must be made since they are the people who will determine the future of STOs. 

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