What is STO?
STO stands for a Security Token Offering. It's a compliant digital crowdfunding campaign running to fundraise or distribute company shares to existing investors. Security token offering is a very regulated process that runs under security laws.
STO stands for a Security Token Offering. It's a compliant digital crowdfunding campaign running to fundraise or distribute company shares to existing investors. Security token offering is a very regulated process that runs under security laws. The watchdog conducting a regulatory overview of security token offering is SEC (Securities and Exchange Commission).
Related: History of the SEC enforcement against crypto.
What is done from the company's perspective?
To conduct a security token offering, the company has to go through 5 steps.
- Consulting (Determine the type of security/corporate structure/regulation)
- Legal (Preparing all necessary legal documents)
- Technical onboarding (Deployment of the DS Dashboard)
- Marketing (Marketing of your STO)
- Secondary market (Ability to buy or sell shares)
Two main benefits STO brings are the possibility for the company to stay private and raise money from a large number of smaller investors.
STO is often thought of as a blockchain-based IPO (Initial Public Offering) analog. The possibility to trade shares and not actually go public is part of how does a security token offering work. It's significantly less expensive and quicker than an IPO because the latter is highly resource-intensive. STO ensures the company's shares are liquid since they can be exchanged.
Fundraising globally brings the benefit of having a community-driven business. This strategy is more fruitful than attracting one check from a big investor, as the latter will have most bargaining power.
Related: Successful STO: step-by-step guide
How to invest in STO, and what are the benefits?
- Sign up for the technical platform
- Check the company details
- Pass KYC (Know Your Client procedure)
- Sign a Security Token Purchase Agreement
- Purchase shares
- Become the company's official investor and shareholder
Security token offering mechanic allows small investors to participate in the offering with a lower investment threshold (starting with $500 or $1000). Such a strategy benefits both the company and its investors, as the first gets liquid shares and raises capital quickly, and the latter benefit from a low investment threshold and good returns.
Related: Advantages of tokenized securities that matter to investors
If you'd like to see how investing in security tokens works, check out Stobox's STO.