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Security Token Offering


STO

Concept

An offering that involves issuing security tokens to users and investors in the market. Similar to an initial public offering (IPO) in the field of investing and investment banking, a security token offering (STO) revolves around issuing divided shares (units) in an asset or venture or project (a financial security or share of stock in an IPO, and a token in the case of STO). Tokens, per se, represent assets and are listed on networks/ platforms in a process similar to conventional offering.

A security token offering is a type of public offering whereby tokenized securities (tokenized digital securities), also known as security tokens, are sold on a security token exchange or similar venues. Transactions are validated and maintained using a blockchain virtual ledger. STO was introduced as a means by which tokens remain compliant with applicable laws and rules for securities (given that certain regulatory guidelines classify tokens as securities). This type of coin offering is quite similar to an initial coin offering (ICO) but is particularly compliant with securities regulations in the place of issue and offering of the tokens. STOs are issued subject to certain regulatory and legal obligations for issuing and selling of equity (equity interest) in the issuer.

Security token offering process

As a process, an STO involves issuing security tokens on a blockchain, which aims to reduce downtime when transacting or trading in such digital assets. As long as the security tokens are not issued to public users and investors, they can’t be easily exchanged with other cryptos. An STO is subject to relevant security regulations in the place where the tokens are being transacted. Such regulations include disclosure, transparency, and user protection. The token offering involves issuance of multiple types of security tokens, particularly equity tokens, debt tokens, and asset-backed tokens.

Synonyms

It is also known as a tokenized IPO.



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