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Security Token Offering (STO) – Get Ready for The Craze

Last year we’ve seen the Initial Coin Offering (ICO) craze. New projects on the Ethereum blockchain popped up literally every day, and people were eager to get in – in hopes of witnessing some sweet 1000% gains and driving away into the sunset in their brand-new orange Lamborghinis. Since then, the ICO madness died down. Some start-ups got busy developing the project, some threw in the towel, but most sold off their coins and triggered what was a year-long bear market. As 2018 draws to a close and (hopefully) we get to stare at the tails of the passing bear stampede, a new trend is on the horizon – the Security Token Offering (STO). Investors need to arm themselves with knowledge before proceeding further, especially those who believe they had missed the ICO train.

That’s why in this article we’ll break down what security tokens are, what the difference is between a utility token and a security token, and we’ll list a couple of tokens that currently perceived as the leaders among security tokens.

What is a Security Token?

In order to understand what a security token is, it’s best to first comprehend what a security is, in the first place. Investopedia describes it as “a fungible, negotiable financial instrument that holds some type of monetary value.” So, in layman’s terms, it something like a stock. You own it and it gives you partial ownership of the company, you get to share the company’s profit (not always, mind you, this depends on the company policy), and in some cases, you’re even allowed to vote on matters of importance to the future of business.

That means, a security token would be, again speaking in layman’s terms, a tokenized security. It offers the same advantages as ‘traditional securities’, just in a more digital format. On the other hand, however, it also comes with the same responsibilities and challenges regular securities have – and those mostly revolve around legislation.

Why is Legislation Important?

If you haven’t lived under a rock for the past four years, you probably came across an opinion that mass adoption of crypto depends on regulation and legislation. Crypto needs strong laws that will help businesses build solid solutions on the blockchain, while protecting users and investors from Bitconnect, exchange wash trading, and various other types of fraud.

Security tokens fall (almost entirely) under the same legislation as traditional securities, meaning they are far more likely to be embraced and supported by governments around the world. Unlike utility tokens (which don’t represent ownership of a company, but are rather a tool that lets you use whatever product the company is building), security tokens can be seen as a modern approach to traditional investing. Think of it as the best of both worlds.

The caveat is that security tokens cannot be listed on today’s exchanges, and in some countries, they can’t even be sold legally. That’s why you’ll see some STO not available to investors in countries like the USA or China (this can change, though).

So if you were to look for household names in the securities space, where would you look? Which tokens are considered the Ethereum for securities? Tough question, one usually fully loaded with emotion. There’s something about money that makes people incredibly emotional, and whatever you say on this topic, someone will disagree (and in some cases, even get offended). However, asking around the internet, I’ve spotted one name that keeps popping up on multiple occasions (examples one, two, three, four), and that’s Polymath. Swarm is another name that gets thrown around, so I’ll list it here as an honorable mention. Investors looking into security tokens can start with those to learn more about the space, how it operates and what they can expect from the market. But as usual, don’t consider this investment advice. Think of it as more of food for thought.

Brace for impact

STO are definitely coming, and probably sooner than we can all expect. There are good chances they will create a similar FOMO effect that we’ve seen last year with initial coin offerings. I’m not going to lie, yes – STO can be a really, *really* good chance for investors to earn some money. But they need to be extremely careful and arm themselves with knowledge before throwing their hard-earned greens anyone’s way.

As a recap, we can say that STO can be seen as an evolutionary step from ICOs. They embrace government legislation, which means more transparency and less risk for investors. People that buy security tokens can expect to be considered partial owners of the business, to be entitled to shares of profit, or even to participate in voting and deciding on the future of business.

Hopefully, this article will provide some insight and some useful information as we go into 2019 and the possible STO craze.

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