STO stands for Security Token Offering. Like ICO, STOs are issued to raise money for the business. However, these security tokens are backed by real assets, i.e. equity, debt, loans, funds, etc. STO is a blend of ICO (Initial Coin Offering) and IPO (Initial Public Offering). It was established as a secure form of raising funds after ICO suffered from frauds and scams. In early 2019 STOs increased by 135%.
IEO stands for Initial Exchange Offering. It is an ICO done through the exchange. Instead of issuing the tokens directly to the investors, tokens are listed on exchanges for the investors to invest. Investors can instantly buy tokens from exchange using the funds stored in their exchange wallet. It is more secure than ICO, but there is no regulation. IEO came into action when ICO started facing a downfall. Binance was the first IEO cryptocurrency exchange.
Let’s read about the benefits and drawbacks of STO to see if it is better than IEO.
Advantages- Regulatory Compliance: It is one of the main benefits of STO. It is compliant with regulations. Unlike many other ICOs which faced cease and desist orders in the US, STO just needs to file for exemptions with the SEC to keep going.
- Safe: As STOs are regulated, there is no chance of fraud or scam from new investors. It is safe to raise funds and invest.
- Transparency: There is full transparency in STOs. The investors can see all the tokens that are issued. The investors can safely invest as there is transparency in STO.
- No entry barrier: There are very fewer entry barriers in STOs compared to IEOs. IEOs requires a very long procedure to issue shares. There are many parties involved. Lots of expenses are incurred in the IEO. Whereas STOs are easy to raise funds without any barriers.
- Flexibility: STOs provide flexibility in running the business. You can have complete control over the business and run it accordingly. The security tokens can also be traded after the initial selling is done. It increases liquidity.
- Global Investors: As the token standards are universal, they can be traded all around the global. It increases the number of global investors as there are no restrictions. It is not at all time-consuming, which makes it even better. The funds can be easily liquidated by investors.
- Fractional Ownership: Tokens allow the security asset to be divided into smaller units, thereby enabling fractional ownership. It also makes the token easier to transfer.
- Complex Compliance: Compliance can become a significant hindrance as the process becomes very complex. It has to follow the same compliance as an IPO which makes the process complex and increases legal risks.
- New Market: STO was launched in 2018, so it is fairly new. Also, the market in which STOs are issued is quite new. There can be long-term risks associated with it. New rules and regulation can be introduced, and a lot can happen in a new market.
- The platform needed to manage tokens: STO needs a digital platform to be run. Also, the tokens need to be managed through that platform. It needs a whole setup from where the funds can be raised, and tokens can be issued.
