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Security token offerings are one of the hottest topics in the security world. But what do they actually do? What security token offerings have already been launched? And how can you make sure that your security is protected when investing in a security token offering (STO)? We know you have a lot of questions.
If you're a blockchain enthusiast, security token offerings (STOs) may sound like something new and exciting that's just around the corner. The reality is they've been around for a decade now!
A security token offering (STO) is an innovative new way to raise capital, and it can be beneficial in many ways. In this article, we will provide information on security token offerings so that you can make an informed decision about how to go forward with your project or business.
What is a Security Token Offering (STO)?
A security token offering (STO) is a new way to raise capital that's more efficient, transparent, and cost-effective than an Initial Public Offering (IPO).
It also protects investors from scams by ensuring they meet the criteria for investing in security tokens. Security tokens are designed to be investments with long-term value rather than short-term.
It's security-based crowdfunding, but with tokens. You might be wondering what security means in this context? A security is any kind of financial instrument that can represent ownership and control over an asset or group of assets like stocks, bonds, and their derivatives. That includes common stock shares, publicly traded on a company’s stock exchange, or security exchange.
Investors who buy security tokens are entitled to the profits, dividends, and other benefits that come from ownership of a security in law and how they're represented by an asset token on a blockchain system like Bitcoin.
What are the Types of Security Tokens?
Security tokens are security-based investments that typically represent ownership and control over an asset or group of assets. There are primarily three types of security tokens you'll want to be familiar with when researching security token offerings (STOs). They include equity tokens, debt tokens, and asset-based tokens.
Equity Token
Equity tokens represent shares in ownership of a security and are the most common security token. Equity tokens entitle holders to voting rights as well as dividends from profits generated by the security's activity, which may consist of company profit distribution or revenue share with other investors.
In recent years, there has been an increase in equity-based crowdfunding campaigns that have been successful. Equity-based security tokens are a type of security token that is increasingly being used to regulate the rights and interests of new or young companies with high growth potential, such as startups.
Equity-based security tokens will be subject to regulation by securities authorities, and you'll need to consult your legal advisor on how this might affect you.
Debt Token
Debt security tokens are backed by debt securities and represent a creditor relationship with the company. They're typically issued to businesses that can't afford equity but need funding for projects they believe will generate future income. They represent instruments like real estate mortgages and corporate bonds.
Asset-Based Token
Asset security tokens are essentially backed by an asset, such as commodities or real estate. That is, they represent ownership in anything like real estate, bonds, gold bullion, and other physical goods, as well as digital assets like cryptocurrencies.
Conclusion
Readers should seek the advice of their legal advisor for security token offerings in order to protect themselves from scams by ensuring they meet the criteria for investing in security tokens. Security tokens will be subject to regulation by securities authorities, so security token offerings (STOs) are expected to be more regulated than security-based crowdfunding.
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