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You know, what is a token and what is the relationship with cryptocurrencies? Have you heard about the great ICO boom in the 2017 year? Meet the STO (Security Token Offering) - combination of an ICO with a classic, fully regulated financial market.
The article is part of free training - Cryptocurrencies - how to start and survive? course for everyone!
STO - Security Token Offering
STO - in a way - is new, an improved version of the ICO. In order to indicate the differences, let's first look at how the ordinary ICO works. inicial coin offering).
ICO - Utility Token Initial Offer
A team of people has an idea for the development of a technological project, but there is no funds for its implementation.
Therefore, he prepares a white paper whitepaper), in which he presents the problem and the solution he invented, as well as the benefits of that solution.
Next white paper shows potential investors.
He also introduces his team, indicating his competences, professional experience and skills.
Creates a project implementation schedule (road map), as well as a financial plan.
ICO has so-called soft cap, i.e. the minimum amount that must be raised for the project to start and be funded to a minimum.
It also has hard cap, the optimal sum that will allow the team to fully fund all of its ideas.
The team then announces a fundraiser for the project.
Investors interested in the project, wanting to fund it, pay money (usually in cryptocurrency Ethereum) and in return they receive tokens issued by the creators of the supported project.
This is ICO, i.e. issuing tokens. Here you should stop to indicate the essential thing.
Tokens issued by the creators of the project they cannot act as shares of their emerging startup, because it would be unlawful because such action is strictly regulated by law and controlled by the financial supervision committees of a given country.
Thus, utility tokens are issued at ICOs. utility tokens.
Is it worth investing in ICO?
In practice, most projects emit tokens only to collect money in ICO.
There is no value behind the tokens.
Nobody guarantees anything to investors.
These are not company shares, so the success of the project does not have to translate into an increase in the value of issued tokens!
At any time, developers can print tokens, release further tokens or simply take care of the project without even introducing tokens to the stock exchange.
There is no formal agreement between investors and token issuers.
These are nothing more than tokens that have a role in the project.
Generally the role of utility tokens is stretched. Meanings are invented for them just to be utilitarian. Somewhere you have to pay with them, but all in all you can pay with traditional cash (e.g. dollars).
There are few projects for which tokens will increase in demand as the importance of the project increases. For most tokens, they are worth nothing, because there is no value behind them.
Startups can enter the traditional stock exchange and issue real shares at any time ...
Therefore, an attempt to earn money with ICO tokens is in many cases nothing more than buying worthless tokens, which then trying to resell more other investors.
Usually there are no benefits associated with having tokens. You can't count on a share in the company's profits, you don't have the right to vote on project development.
Utility tokens they act as a brick bought for selfless support of someone else's project.
Does the ICO have a future?
ICO it was revolution.
Never before in such a simple way, safe in terms of cryptographic, convenient (for both investors and creators) it was impossible to raise money for startups.
In addition, ICOs are global and are available to almost everyone, as there are usually no restrictions on the number of tokens purchased.
It all made us watch the real one pour out projects financed by the ICO, and in total, billions of dollars flowed into teams behind them.
Everything would be beautiful, if not for that many ICO are scams.
After collecting the money, the band disappeared. Tokens of some projects never even went public. The designs were created like mushrooms after rain, offering little original solutions.
They collected money and pretended to be working on a project.
In the meantime, they were marketing to get people buying their tokens on the stock exchanges, pumping the price. They played their cryptocurrency course themselves, making money on it.
Also check: Bitcoin is a speculative bubble?
Often, such people participated in many ICOs, constantly collecting new funds, attracting new investors.
Only a few percent of projects funded in ICO survived the first year, and their plan is implemented and its effects will find practical application.
Currently, during a bear market, most ICO tokens are sold below the ICO price, sometimes several times cheaper.
It makes it once less willing to invest in ICO.
The future of ICO is ... STO?
The ordinary Kowalski has already bought cryptocurrencies. Everyone has heard of them. Whoever wanted to have already bought it. It was hard to resist it during the bubble from the turn of the 2017 and 2018 years.
Now time for the institutional bubble, associated with entering the world of cryptocurrency companies, banks, investment funds and traditional stock exchanges.
No serious investor or manager will risk losing his company's capital by investing in ICO tokens without any coverage or guarantee by the issuer.
No one with capital of hundreds of millions of dollars in ownership of any institution can invest in the unregulated market of cryptocurrencies.
Today, it is difficult to imagine clear regulations for already existing cryptocurrencies, such as bitcoin, ethereum, lisk, IOTA or monero.
Maybe ETF may be introduced on bitcoin or even ETH and LTC, but still no company is likely to invest in utility tokensbecause they are supposed to be tokens used in products, not a speculative asset or "stock".
The missing piece of this puzzle may be security tokens!
They are securities, so they are fully regulated by law. They are a bridge between the traditional financial system and cryptocurrencies.
STO - Security Tokens initial issue
Technology blockchain will soon revolutionize many areas of the economy, but above all the financial system.
Expected to be currently existing the securities will remain stokenizowane, i.e. exchanged for tokens.
In this way, shares Facebook in the form of tokens you will be able to buy the fully paid stock market reminiscent of those cryptocurrency, and then you will be able to store them secured cryptographically portfolio (like cryptocurrencies).
Traditional exchanges can turn into exchanges for trading tokens.
Without intermediaries, the investor can deposit and withdraw the stokenized shares, trade them 24 hours per day, 7 days in the week, on the international liquid market.
In this context, blockchain technology can move traditional financial markets to a new era of digitization. How does this relate to STO?
What does STO mean?
STO is initial sale of tokens, which are property files of a given property (eg real estate, companies).
In the case of utility tokens, there is no value behind them. They only play the role of tokens to be used in ICO project products.
In the case of STO, the value of each token issued is secured by some specific goodthat has been tokenized.
It may be the right of ownership or participation in some undertaking, company.
Therefore Security Tokens are the counterparts of traditional shares or ownership deeds.
The advantage of STO over ICO
Conducting ICOs, creator teams write cartoons on their websites and in white papers, on the basis of which investors make decisions.
Nobody verifies it.
STO must be fully regulated.
Tokens must meet certain standards. They are financial products subject to traditional regulations.
The issuer of the security token is legally responsible for its activities, and investors are legally protected.
By purchasing a security token you become a shareholder of a given start-up.
According to the provisions of the contract, you should participate in the company's profits, because by possessing its tokens, you are its shareholder. You can also have the right to vote on project development as a co-owner.
Example of real estate tokenization
However, many things can be tokenized.
For example, the owner of a shopping center can make them tokenize.
Signature / Firma tokenizing property, e.g. Atlant project, must have all necessary consents and permissions to conduct such activities.
The shopping center is checked for building condition, financial charges and ownership.
Then, security tokens are issued, secured in this property ... or otherwise, corresponding to the ownership of its part, e.g. up to 1 square meter.
Investors by buying tokens of a given shopping center, becoming the owners of its part.
Next, rental profits the area of such a shopping center is paid proportionally to token holders.
Tokens can be traded on the stock exchange, just like stocks of companies. Their value will change depending on the financial results of the shopping center.
This is just one example of asset tokenization by issuing security tokens under STO.
Equally well, sitting in front of the monitor in your home, we can become a co-owner of a solar power plant in Namibia, tea plantation in Bali and/ or a holiday home in Mallorca.
At any time, we can sell our shares, without intermediaries, directly on the stock exchange.
It is in front of us that a blockbinding financial revolution is born and part of it will be STO.
Also check: What is tokenization? Examples of tokenized aset
What is IEO and how does it differ from ICO? See the Binance Launchpad guide
The article is part of free training - Cryptocurrencies - a course for everyone!
