STO (Security Token Offering) is yet another Cryptocurrency TLA (Three Letter Acronym) that is currently en-vogue, even during this extended cryptocurrency bear market, the so called crypto winter.
And while the current market decline can largely be attributed to the failing of many of the ICO (Initial Coin Offering) projects that were ubiquitous in 2017/18. STO’s could be what brings the market back to its previous high’s and beyond
The critical difference between an STO and an ICO is highlighted by the first word – ‘Security’. Unlike ICO’s, which give investors the chance to speculate early on a Blockchain based ecosystem that will exist in the future, security tokens are actually backed by something tangible, such as physical or financial assets of a Company. Ultimately then, something real, rather than the promise of something that may or may not exist in the future.
Security Token Offerings are to all intent purposes, securities. Ownership is confirmed via Blockchain transactions, and this tokenisation – conversion into digital certificates – of the asset also allows for fractional ownership of the security. This has huge implications for assets that have previously been out of the reach of the majority of retail investors. A 30 million dollar painting can now be tokenised and sold to multiple investors rather than just one big investor.
This brings liquidity to the market for such high value assets and reduces the need for a ‘liquidity discount’ in order for a quick sale, a huge advantage for the seller.
The fact that the entire buying and selling process of large assets can be executed by issuing STO’s over Blockchain (an immutable digital ledger) reduces the need for the usual middlemen to get involved at every stage of the transaction and effectively babysit the process. This in turn means that the process can happen much more quickly and cheaply than has previously been possible. Although some argue that this itself is not necessarily an advantage and that micromanagement of the process is required on the sale of high value assets. STO’s do also need to comply with existing securities regulations, this can be a complex topic, and so management of this is certainly required in the early stages.
Teething issue’s aside, STO’s are securities of real world assets issued over Blockchain and they bring much needed credibility to the Blockchain space which has suffered something of a fall from grace over the past 24 months.
The question now is whether or not institutional and retail money will get on board with this new investment path. Currently many retail investors are still no even aware that it is possible to buy half a bitcoin or less, so the fact that fractions of a painting or other asset can now be purchased is something that is going to take time for education and knowledge to reach the mainstream.