Security Token Offering- The future of cryptocurrency

STO is one unique token that acts as stock, bond, or other equity and can be issued on both permission and permissionless blockchain technologies by Government entities or Business entities. The stakes in any external asset or enterprise are mainly represented through STOs. The offering of security in STO is regulated. The code rules of blockchain decide if the tokens are to be coined, transferred, bought, sold, or even destroyed. Apart from the security protocols, the transactions, insurance, and custody regulations are also monitored by STO. The workings of STO might look similar to Initial Coin Offerings or ICO but after the global issuance of Ethereum in 2014, ICOs gained popularity but they could not sustain their success as many fraud investors took advantage of its unregulated nature leading to high profile scandals. In such a situation the first IEO (Initial Exchange Offering) came into existence to act as the traditional security distributor but it did not give the credibility and stability leading to further scams. Thus the advent of STO happened. 

A quick glance at the features :

• Gives the same sense of security as shares or dividend funds.
• Blockchain technology provides transparency and it gets easier to track holdings of fungible and non fungible tokens.
• Follows a quick process in transferring of assets.
• Easier availability in comparison to other marketplaces.
• Opens varied investment opportunities.

Types of security tokens :

• Equity tokens are similar to conventional stock except for the fact that the ownership in this case is recorded and transferred. The traditional share storing happens through paper certificates, whereas equity tokens keep a record through thousands of computers globally. These tokens also ensure voting rights for investors and offer a democratized and transparent fundraising model.
• Debt token is basically a short term loan on an interest rate given by the investors.  In this case, a smart contract acts as debt security. The debt can be on anything like corporate bonds, real estate mortgages etc.
• Utility token gives access to any service along with raising funds for developing projects based on blockchain.
• Asset backed tokens assert ownership on properties like real estate, art or commodities based on blockchain technology. It provides a secured mode of transaction.

To-do list  for making STOs successful :

• STO mostly is asset backed, resulting in they can digitalize assets through brokers or banks with proper blockchain solution services.
• Proper regulations should be maintained to link between virtual assets and underlying assets, given the borderless nature of operation.
• The trading platforms should work on their reputation and credibility keeping in mind the industry protocols, cyber security assurance and standards of auditing.
• Need of the hour is to educate investors properly because many are still unknown with the workings of virtual assets.
• The value of tokens need to be supervised because tokens at many times are used as a way to get access to various cases like Golem SuperComputer requires GNT tokens. The token with more properties has higher chances of getting the best value in the market.

STO process : 

STO goes through multiple procedures before the final launch and the phases are,

1. A business plan is very important consisting of investment or capital requirement, identifying the targeted investors and profit assumption. Finally the entire plan rests upon the jurisdiction of the investors, brokers or the type of the token getting issued.
2. Next important action leads to the design of the plan. The plan design rests upon deciding the structure, value, and appropriate jurisdiction of the token.
3. Selection of the medium. Medium here indicates the right blockchain platform. A trustworthy service provider is required to balance the cash flow in the market or else you can always rely on STO development companies for crafting security tokens in a secure framework.
4. Collection of finance. Funding is required for approval and then in distributing the tokens to investors.
5. The issued token needs to get sold to a special purpose vehicle or SPV which depends on the trading platform. A listing rule should be created which should clearly mention material standards, trading fees, eligibility of investors etc.
6. Preparing the STO Whitepaper is as crucial as the other points.
7. Lastly, the necessity of the Howey test needs to be mentioned. A crypto coin needs to qualify a Howey test in order to be called a security token.

Top security platforms to launch STO :

• Harbor
• Polymath
• Securrency
• Securitize
• Swarm 

Cons of security tokens :

It is always better to look at both sides while judging the prospect and here are few things to look at as well;

• ICO being a major failure, there will always remain a trust issue in case of STOs.
• The utmost requirement of the hour is to gather some financial organizations who can extend their support and increase acceptability among people.
• Since smart contracts require programming codes, a particular set of skills as well as advanced technology would require huge costing.
• To get the proper blockchain expert to run the procedure smoothly; it would require a huge requisition cost initially.

Security tokens are surely game-changer if we talk about the validation of assets be it equity, debt, or even real assets. The liquidity aspect is surely a game-changer and makes STO befitting for a long-term game but the need of the hour is to gather more buyers and sellers to keep the market of STO going. It would be too early to predict the future of STOs while it’s still in the developing stage but with proper market infrastructure, we can certainly hope for STOs to shine.