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What You Need to Know about Security Token Offerings (STOs)

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Jenna Delport
Jenna Delport
I’m a tech writer, world traveller, avocado-eater and dog lover, not always in that order.

Security token offerings (STOs) have some similarities with initial coin offerings, also known as ICOs, and traditional securities. STOs manage to perfectly combine the high efficiency of blockchain with all the legal protections that can be found in conventional securities offerings. Security token offering is normally perceived as a form of crowdfunding that is able to create a safe and reliable investment climate for potential investors.

What role do Security Token Offerings play?

As it happens, quite a number of places all over the world do not have any special legal requirements for hosting an initial coin offering, which means that almost anyone is able to buy these tokens without revealing their true identity. Companies engaged in an ICO are not required to reveal any information about themselves, too.

It is worth mentioning that these tokens do not have any transference requirements, and investors, who in the long run lose their funds because of fraudulent activity, gain insignificant recourse.

The lack (or almost absence) of regulations has resulted in the increased fraud activity in the cryptocurrency sector, and a huge number of investors suffered from these attacks. To prevent this from happening in future, there must be introduced viable and secure solutions. With this in mind, based on blockchain crypto STO was introduced to help investors and provide greater security.

The introduction of Security Token Offerings

Considering the issues of transparency and security outlined above, developers got down to designing tokens that could fully comply with the Securities and Exchange Commission’s (SEC) requirements. As a result, people who choose to invest in an STO are guaranteed top customer protection.

The companies are obliged to correspond to ATS registration and adhere to the broker-dealer requirements. This kind of protection also comprises the company’s legal name, address, its members as well as financial information.

What is more, the data that has been provided by the potential investor is supposed to go through an approval process, which verifies the accurateness and validity of the information. Once you compare this process with the one in the ICO sector, where there is a low number of checks, you will see why more and more investors are starting to use security token offerings for better investment opportunities.

What about security tokens?

Security tokens fully comply with Know Your Customer, also known as KYC, and Anti-Money Laundering, or AML, laws. Thanks to these compliance features, you are guaranteed top security as they both require individuals and/or businesses to reveal their true identity before initiating the investment procedure.

Naturally, both KYC and AML are common practice when you deal with different financial institutions. Furthermore, a lot of business analysts say that crypto services are bound to follow the same scenario in the not so distant future.

What are the benefits of Security Token Offerings?

Security Token Offering investors will definitely gain a host of benefits for holding the platform’s tokens. There exist numerous platforms and each of them offers its users unique opportunities. For example, these platforms can provide their users with voting rights, dividends as well as revenue shares.

Once you invest in an ICO that grants you these features, you run the chance of investing in a security token. If it is so, then you should make sure that the token is registered with the SEC in order to avoid some unfavourable consequences in the future.

Security Token Offerings: what is next?

Security Token Offerings keep on gaining momentum in the cryptocurrency world. These new and advanced tokenization platforms offer their users the ideal environment for implementing different strategies. Undoubtedly, this trend is certain to become even more popular as conventional financial institutions are keen on working with the crypto market to generate future profit.

Staff writer

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