Investor Rights and Legal Risks Might Make STOs the Future of Funding

Now, according to a Nov. 12, report from Beyond Blocks, there might be a better, faster, and more secure way of funding blockchain projects.

STO stands for Security Token Offering, and it's a new and legitimate way of funding blockchain innovation.

It's seen as a more stable alternative to ICOs, as the security tokens are ties to real securities, which often represent the company's tokenized assets.

Security tokens give the buyer ownership over whatever the token represents in digital form, for example, equity, derivatives, or real estate.

Apart from potentially being able to bring a lot of money to the crypto industry, STOs also require licensing by regulatory bodies such as the SEC. The risk of running into legal troubles halfway into the funding is virtually nonexistent, as all regulatory criteria will be met from the very beginning of the funding.

"What we have been observing in the marketplace is that the popularity of ICOs have been going down as much as people have been claiming that the ICO market is dead. This happened for various reasons. One obvious reason was way too many scams in the ecosystem, but another major reason was that the utility token investors invested in weren't structured well to capture the company's growth. So in cases where companies started to gain traction and generate revenue, investors weren't able to capture much/any growth."

STOs do come with setbacks, especially for companies looking into this type of funding.

One of the main concerns with STOs is that some of form of security tokens don't allow all investors into the sale.

For companies, Security Token Offerings bring complex processes and paperwork, while ICOs haven't brought any real hassles so far, as they're relatively easy to set up and are quite lucrative.

It is still unclear whether STOs will be able to completely replace the more lenient and lucrative ICOs, but what remains certain is that they are offering accredited investors the governance and protection that was often reserved for traditional IPOs.Cover Photo by Simone Hutsch on Unsplash.