2018 is the beginning year of STO. Security token offering (STO) is an online business who provides more protection to investors in a particular blockchain network. It is a way to generate more profits.
STO is defined as a combination of an Initial Coin Offering (ICO) and legal compliance.
While securities are fungible and negotiable financial instruments carrying some types of monetary values.
Examples of the securities:
- Virtual Capital (VC)
- Real Estate Investment Trusts (REIT)
In a traditional way:
- When security is purchased, then a next operation will be done on a paper.
(When a person invests, then the ownership information will be written on a document.)
In a modern way:
A security token is not a cryptocurrency. It is not also a token issued in the ICO. It is actually a tokenized form of a particular security. It can be issued, purchased, and sold using blockchain technology. It is recorded on the blockchain.
- A smart contract in the blockchain helps the security token
- The smart contract is coded according to the legal compliance
- In the smart contract, when specified requirements are matched, then a next operation will be carried out
- A way to issue, buy, and sell security token is determined in the smart contract
- The blockchain uses the smart contract. Therefore, it has features like immutable, traceable, and transparency.
The most valuable trait of the security token can be global liquidity.
Very small ownership of an asset can be represented as a security token. Global security token exchanges are the places where customers can trade security tokens.
The execution of deals faces annihilation in traditional securities markets. Various intermediaries are the reason for this annihilation. Combo of excel spreadsheets, paper certificates, lawyers, custodians, accountants, and intermediaries are required to manage the traditional securities markets. A lot of time and money is also required. Human error can occur greatly. The traditional securities markets are difficult to manage.
Security tokens are digitized in nature. All those things are not required in the STO. STO is designed to give more accurate and efficient.
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