The funds raised in ICO will be used by the team to build and develop their “child“. Investors hope that the token would perform exceptionally well and they would get good returns on their investment in the future. In return, they get tokens specific to that ICO. The backers believe in the product the team declared to create and invest fiat or existing cryptocurrencies in it. A team with an idea looking for funding would start an ICO and get investments from early backers. So, it is important to know that a “security token“ itself is a token backed by physical assets, and something that existed in ICOs. Similar to shares, equities or bonds, they allow participation in companies and their revenue streams, allowing token holders to receive dividends. On the other hand, a security token, also known as asset token, represents real assets. Utility tokens give their holder access to a product or a service. Security tokens existed before STOĭuring ICO a project can issue utility and security tokens. Before shaking things up with STO, let‘s look at token types and ICO first. STO is just a regulated version of ICO and has it‘s own advantages and disadvantages. One might think these 2 fundraising methods are different and STOs are something new and undiscovered, but it is not true. STO can be compared to Initial Public Offering (IPO), where tokens are treated as real securities. It offers more transparency and security for an investor, but sets higher barrier to entry for both, the teams and the investors. How is it changing the game? STO is a regulated ICO.
The new trending fundraising model called Security Token Offering (STO) brings more security to investors. With misuse rate of near 70%, ICO is blamed to present a higher risk for investors. Initial Coin Offering (ICO) is the first, the most-used and fast way to crowd fund a blockchain project without a middleman, at least it was in 2017-2018. In the rapidly transforming blockchain ecosystem, new terminology is showing up quickly.
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