With so many ICOs getting launched every day, it is difficult to differentiate a good ICO from a bad ICO. What is even more astonishing is that not even 20% of the ICO’s are able to reach soft cap (minimum amount to be raised). ICO, STO, crowdfunding – all these terms are so mingled up that it is difficult to clearly understand what they stand for. We, at TokenAsia Platform, would help you understand each of these terms and their relevance. So, let’s start from the very beginning and understand the relevance of a Security Token Offering in crowdfunding/crypto ecosystem.
ICO (Initial Coin Offering) is a popular way of crowdfunding for crypto projects. Through this process, a company which is either:
- have an established non-blockchain project
- or have a ground-breaking concept for Blockchain application
offers institutional investors and general public digital tokens or digital coins. These digital tokens/coins are a promise to future access to a company’s product or service. That’s why they are often called Utility tokens.
Now let’s compare an ICO with an IPO. IPO is the traditional way by which companies go public, offering shares to the financial institutions and the general public. A share entitles the holder ownership in the company, rights to vote and participate in the stakeholder meetings. It is a promise of getting dividends in the future or getting profit due to the rise in the prices of the shares. That’s why a token/coin offered during an ICO is different than shares offered during an IPO.
However, all ICO projects don’t offer utility tokens. Such tokens are like an investment contract, wherein the main reason for the investors to buy the tokens is the expectations of future profits in the form of dividends, revenue share or price appreciation. In July 2017, SEC (Securities and Exchange Commission) published a report, according to which some tokens can be classified as securities and are subject to regulations as applicable on other securities.
Tokens offered in many of the ICOs don’t have any utility in the actual business ecosystem. They have features similar to ‘shares’ in an IPO. These are called Security Tokens. A Security Token is backed by something tangible like the assets, profits, or revenue of the company. Participating in a STO (Security Token Offering) is similar to participating in an ICO. The only difference is the fact that the tokens offered in a STO are the Security Tokens and not the Utility Tokens.
Also, one of the main benefits of issuing Security Tokens is the fact that they abide by regulatory frameworks, which makes them cheaper and more efficient than offering Utility Tokens. A business that issues tokens that follow all regulatory compliances is less likely to experience interruptions from SEC.
Securities laws are well developed and defined in most of the countries. Thus, Security Tokens would inherit a well build legal framework and structure that would support token buyer rights, protect them from the unfortunate situations and set their expectations right. However, secondary trading and liquidity are comparatively reduced for these tokens, as securities can’t be traded as freely as the Utility Tokens since securities are subjected to many country-specific restrictions.
TokenAsia Platform has been designed keeping in mind various needs of a company going for an ICO. We manage ICO launches end-to-end, taking care of campaign management, marketing & PR, social media, whitepaper writing, bloggers outreach etc. With an in-house team of competent Blockchain developers and consultants, we are in the right position to guide you on whether to opt for a STO or an ICO based on the core mechanics of your project. To know more about our services, drop an email at firstname.lastname@example.org