When it comes to defining Security Token Offering or STO, then it is known to be a fundraising tool like ICO when an investor exchanges money for tokens and coins. But it consists of regulations that make token holders responsible for their activity. It is considered a big step in token evolution. Now, the question is what makes it so important. However, if you have been in touch with upcoming security token offering listing, then you will find that STO is a step further to ICO which includes distribution of tokens falling under security. They are connected with the underlying investment assets like bonds, REIT (Real Estate Investment Trusts), stocks and other funds.
Ever since the evolution of blockchain technology, it has gained much popularity due to Bitcoin in early stages. And now with the growing development of smart contracts, security tokens are making their mark as real digital assets running within legal boundaries. As the name suggests, security tokens provide security distribution which is changeable. These tokens cannot be traded for regular token exchanges. Exchanges interested in security token trading must follow the regulations, including data sharing. It indicates the fact that security tokens prefer to do trading on special exchanges.
Explaining 4 Layers Of Security Token Offering
While defining Security Token Offering, you need to understand its 4 layers, which are as follows:
1. Smart Contracts
Smart contracts are underlying programming languages that are set by the blockchain protocol. Along with utility, they contain a value, which is why they are also termed as utility tokens.
As the digital asset ecosystem facilitates trading, it makes exchanges an important component. Having no exchanges makes the token worthless unless someone is ready to pay for them.
3. Blockchain Protocols
Security tokens cannot inherit their protocol technology but can be set up on blockchain protocol like Ethereum, as being the most popular space, currently. However, it is not the only chosen option, as other protocols are entering the space too.
4. Issuance Platforms
These platforms are behind the distribution and creation of utility tokens and are responsible for maintaining smart contracts.
After defining Security Token offering through its 4 layers, now let us know about what made STO became a better alternative to ICO for the investors.
STO Replacing ICO
Dating back to the year 2018, during the time of ICO mania, there came a sudden rapid rise in STOs which was never expected before. This remarkable shift from ICO to STO came due to a low point in the retail market (Ethereum and Bitcoin). Another reason that became the reason for ICO downfall was the reducing demand from the retail investors. This failure made them switch their choice to STO.
Listing some of the advantages which made STO superseding ICO are:
Reliability: During the time of ICO, many projects got flunked as they failed to meet the promises. Besides this, most of the investors got stuck with useless coins. Contrary to it, STO did the opposite by following regulations and making blockchain and cryptocurrencies sustaining the credibility.
Low Cost: In comparison to traditional currencies, which are costly and sluggish due to their old rigid infrastructure, security tokens offer services at a low price.
No limit: Security tokens are free from any limitations from borders or any local regulations.
Enabling Liquidation Of Assets: Since security tokens aim to trade on special security exchanges, it will make it easy for investors to liquidate their assets.
So now by defining security token offering (STO), you must have got a clear understanding of the subject. The blog made you know about the STO and how it surpassed ICO because of its poor functioning. Apart from defining STO, you also got to know about its 4 layers, which gives you a better understanding of its operation. Other than this, you got to know the reasons which reflected ICO downfall and the dawn of STO. The rising popularity of STO completely overshadowed ICO and prompted the investors to switch their choices from the former to the new uprising one.