Many people are skeptical about the value of investment opportunities, which is understandable given that frauds just tout shiny objects or promises of greater rewards. When it comes to investing in cryptocurrencies, there is always a risk involved, and one needs to be keen-eyed when exchanging money. However, the security token offering (STO) platform can help get rid of this risk by employing smart contracts as a means to deliver securities through blockchain technology.
Further, we will discuss the essence of blockchain technology and the ways STO makes investments more democratic.
Table of Contents
What is blockchain technology?
Blockchain is a revolutionary way of recording and transferring data. The advantages of this include removing intermediaries/third parties that handle even simple transactions such as payments and many more. It is so convenient that it’s hard to imagine this innovation has not been known for long.
People all over the world are busy making money on cryptocurrency investments (here’s the proof link) and blockchain technology, and the number of people who stay behind is growing exponentially. It is the right way to invest in cryptocurrency and a great way to become the next billionaire. Some people are also investing in the security token offering (STO) of blockchain companies.
Security token offering: general outline
STO is an emerging trend in the cryptocurrency market. An STO is similar to an initial public offering (IPO) in the stock market, the only difference being that the security tokens are sold at a much higher rate in an STO.
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What is the purpose of a security token?
- A security token is designed to help companies raise funds for their projects. Blockchain technology allows any person who wishes to invest, do so without necessarily having to go through financial institutions such as banks or stock exchanges.
- During the STO, the company’s stakeholders will tokenize their shares by using a smart contract to help them trade into security tokens.
- The company will create a blockchain-based on Ethereum that would be used to trade the tokens rather than a simple coin.
- The tokenization of these shares would help investors feel more secure through blockchain technology and better control over their investment.
How does STO make investment more democratic?
A security token lets the general public make investment decisions:
- the general public would be able to interact with the company’s shareholders in a decentralized manner without having to rely on intermediaries such as banks or stock exchanges;
- by using STOs, investors are able to gain value from the STO at a much higher rate compared to traditional investments in the stock market;
- by tokenizing their shares, investors get added value from participating in an early-stage technology company.
It won’t be long before many people start to realize the value of STOs. They will even go a step further and create more innovations from security to reward their investors. Security tokens are not just for raising funds but also help companies become compliant with regulations and laws governing securities. This would also mean that investors can trade their security tokens on exchanges without worrying about legal requirements after the STO.
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Benefits
- There is a high level of trust in using INX security tokens offering investments.
- Security tokens are safer than regular security-backed securities.
- The tokenization would mean that it would be decentralized and transparent, meaning that there is less chance for fraud.
- The general public can participate in investment projects by simply buying the security tokens from any exchange or broker platform which supports them.
- The tokens are not in a coin format, which means that they would be more liquid. This lowers the risk of a project’s failure.
- The general public can benefit from any investment decisions by simply owning the security tokens. The benefits of STOs will be distributed among all those who decided to participate in it.
- With STOs, companies will also have transparency to investors since they can monitor how their funds are being used, which would help them improve their financial performance and make more informed investments.
Challenges
- The biggest challenge is that it requires the education and training of financial experts on how the process could work. It will take time before STOs become mainstream.
- Although security tokens are safer than regular securities, they are still subject to regulation by financial regulators in a country where the company is registered for its operations.
- Security tokens cannot be transferred into fiat currency such as the U.S. dollar. It can only be traded to other cryptocurrencies or used to make payments for goods and services.
- Companies offering STOs must be regulated by financial institutions such as the U.S. Securities and Exchange Commission (SEC).
- Security tokens are not securities backed by an actual physical asset, which means they are only worth what the market says.
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What financial institutions would need to consider taking part in the democratized trusted token economy?
Among such institutions, we may outline:
- Exchanges
Many exchanges will need to be created which support the security token trading. However, these exchanges are established enough to ensure that the STOs will run smoothly since there is a high level of trust and knowledge in creating these platforms. - Institutions
To prevent any fraud, financial institutions such as banks or stock exchanges must create their platform for STO trading, allowing investors to safely participate in any STO projects they wish to invest in. - Investors
STOs will be created for the general public to invest in any project which they want to. Once a project is successful, investors are able to gain from its success.
Financial regulators must also be ready for this new method of investment to ensure that any bad projects do not join the STO market without regulation.
Conclusion
Security tokens are an innovative fundraising method for companies that will help change the way investors participate in a project. This is seen as a trend in the cryptocurrency market that more people who wish to raise funds for their projects would adopt.
They are similar to traditional investments such as shares but have many added benefits. The tokenization process of company shares would improve transparency and security for investors.
STO is a tool for making investment more democratic since it allows the general public to invest in a project directly, without the need for financial intermediaries like banks or stock exchanges.
