What Is a Security Token Offering?

The world of initial coin offerings is bound to undergo some major changes. Regulators all over the world are closely scrutinizing this industry because of its somewhat shady nature. Transforming this business model into security token offerings could alleviate a lot of concerns. However, most people have no idea what an STO entails exactly.

The Appeal of a Security Token Offering

Even though the initial coin offering industry has been pretty popular and rewarding for various companies and projects, the business model still leaves something to be desired. To be more specific, every time an ICO is organized, one has to wonder if the tokens being sold could be considered securities at some point in the future. With the SEC cracking down on such misleading securities offerings, the companies behind these projects will usually be unable to achieve their initial goals.

On top of that, it seems there are quite a few initial coin offering scams to be wary of, and they will need to be weeded out sooner rather than later. In the case of the Centra ICO, it didn’t take long for regulators to slap fraud charges and security law violations on the people responsible for creating this venture. There have been a few other projects suffering similar fates as well.

One way of ensuring there won’t be any further concerns regarding initial coin offerings is by replacing the business model altogether. It will not be easy to do, but it seems the PolyMath team may have come up with a viable solution. More specifically, the company proposes a brand-new business model known as the security token offering, or STO.

As the name somewhat suggests, STOs and ICOs are not all that different on the surface. Companies can still issue tokens and shares as they see fit, and the tokens can be sold, bought, and traded all over the world without any repercussions. However, the tokens offer more “rights” compared to regular ICO tokens which are mainly focused on utility rather than actual benefits.

Such tokens will also be backed by assets, profits, or revenue generated by companies. This means these tokens will have tangible value from day one, rather than be based on hype and speculation first and foremost. It is a financial security just like that which is issued by traditional companies, but with a few cryptocurrency-related elements added to the mix.

Another benefit to security token offerings is that certain parties can be blacklisted from trading these tokens. This requires slight modifications to the underlying smart contracts and involves a proprietary form of whitelisting technology. By turning all ICOs into security tokens from day one, a lot of regulatory scrutiny can be avoided. However, this will require service providers which can take the complexity out of this process and allow companies to embrace this business model with relative ease.