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What is STO?

What is STO?

Learn what is STO, how does a security token offering work, and find out how it is beneficial for businesses.

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. 

Not sure where to start and how much will it cost?

Consult with the Stobox expert

Jason Jones
Jason Jones
Head of Sales
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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.

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