ICO vs STO: Whats the Difference?

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Whether art, gold, cars, or even real estate, the purpose of an STO is to protect investors. Enters KYC/AML verification, which unsurprisingly is not a requirement in an ICO. One of the most practical uses of blockchain technology is crowdfunding democratization because it facilitates equity tokenization while bringing liquidity to investors. On the other sto vs ico hand, a security token, also known as asset token, represents real assets. Similar to shares, equities or bonds, they allow participation in companies and their revenue streams, allowing token holders to receive dividends. So, it is important to know that a “security token“ itself is a token backed by physical assets, and something that existed in ICOs.

sto vs ico

But in short again, security tokens are more regulated and thus protects the rights of investors. The holders of these security tokens will have more power and protection than the holders of simple unregulated utility tokens. Security token holders can have voting rights, dividends rights, the right to legally sell their capital or interest, profit sharing model, etc. Initial coin offering (ICO) is a controversial means of crowdfunding via the use of cryptocurrency, which can be a source of capital for startup companies.

Security Token Sale (STO): An Overview

Security token offering offers full ownership over a completely secured blockchain ledger. STO is highly secured as there will be involvement of government authorities. Other than the regulations, all other processes will be the same as there in the initial coin offering. ICO is a fundraising method where new projects or companies issue a new cryptocurrency or token in exchange for funding from investors. The token is often offered at a discounted rate during the ICO and is expected to increase in value as the project develops.

sto vs ico

Securities token offerings and Initial coin offerings are some of the most common ways of raising funds in today’s decentralized finance ecosystem. They are similar to Initial Public Offerings (IPOs), except for the differences in the underlying assets. While tokens from STOs are traded on regulated exchanges, ICO tokens are listed on dedicated digital currency trading https://www.globalcloudteam.com/ platforms. Another major difference worth highlighting is the role of the issued tokens in both forms of the fundraiser. The digital assets being issued in an ICO typically represent a utility token that is central to the operations of a blockchain-based platform. The tokens could grant all accredited investors access to the protocol and its products or services.

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The value of a coin is generally determined by the rights represented by the token, as well as the progress of any underlying project. Already, STOs have been implemented in several domains of traditional financial securities. These include equity, real estate, investment funds, and even fine art.

  • STOs are new crowdfunding vehicle much like the ICOs but with a strict regulatory framework attached to it.
  • The right advisors for your fundraising campaign are more than just random people who have dealt with cryptocurrencies before.
  • After the emergence of cryptocurrencies, most startups and crypto preneurs started raising their funds by means of crypto crowdfunding.
  • After working closely with the SEC, and being successful with the STO process, INX is now helping/guiding/leading other companies who seek to go through this desired path and enjoy similar results.
  • Waves is a great choice for those who want to launch an ICO, but the platform is especially suitable for teams who do not have the resources to use the Ethereum platform.
  • On our blog, he writes about distributed ledger technology, smart contracts, cryptocurrencies, industry news, and future trends.

Pump and dump schemes have long been connected with ICOs, which the regulator sees as a major red flag. Security token offers, on the other hand, are related to a more established corporation and reflect genuine securities such as bonds or equities. Even with these benefits however, the real value of an STO— when compared to an ICO— rests in regulatory compliance. There are certain steps that should be followed for launching ICO and STO. Now, we shall discuss those crucial steps individually for both ICO and STO. The information provided on this website does not constitute insurance advice.

Security Token Offering (STO)

Except for the differences in the underlying assets, they are similar to Initial Public Offerings (IPOs). STO tokens are traded on regulated exchanges, whereas ICO tokens are traded on dedicated digital currency trading platforms. The primary difference between STO and ICO is that STO is considered a security token offering. Security tokens represent an investment contract, giving investors ownership of the underlying asset or company, while utility tokens give users access to a product or service. On the surface, both initial coin offerings and security token offerings follow a similar process where an investor gets a crypto coin or token which represents their investment. But unlike an ICO coin or token, a security token comes with an underlying investment asset, like stocks, bonds, funds or real estate investment trusts (REIT).

sto vs ico

And it worked like a charm first, teams raised billions and many investors at the end hit the jackpot. Within months in the middle of 2018, the scales shifted to 20/80 and near 80% projects were “scam”, not delivering the product declared in their white papers. Tokens offered in ICO are referred to as utility tokens which means that an owner of a crypto token has the right to access products or services offered by the startup. ICOs have reaped a hefty return for both the startups and the investors. Like other crowdfunding methods, there will be no regulations and involvement of central authorities.

ICO vs. STO: What’s the Difference?

One might think these 2 fundraising methods are different and STOs are something new and undiscovered, but it is not true. STO is just a regulated version of ICO and has it‘s own advantages and disadvantages. Before shaking things up with STO, let‘s look at token types and ICO first. A private firm, on the other hand, decides to go public at a later time once it has grown into a more stable business and has a proven product or service. An ICO investor does not possess company equity or have the capacity to vote on important internal decisions.

In fact, the ICO is another implementation of the crowdfunding model, when participants finance the development of a company now in order to get some benefits from it in the future. For crypto newcomers, ICO vs STO is now the most popular comparison on Google. And every year, the number of Google searches for “What’s an ICO” or “What is STO” is growing. That’s why we decided to create a quick comprehensive comparison of STOs and ICOs.

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As the fundraising space for blockchain projects continues to evolve it’s almost certain we’ll get some new acronym for a new type of campaign. My guess is that evolving regulations will eventually put fundraising primarily under an STO model, at least in most countries. This new model will allow for all investors however, just as traditional equities do. While there is no equity behind the tokens launched via and IEO, there is due diligence performed by the listing exchange platform.

sto vs ico

STO cryptocurrencies are those who are launched in security token offerings under the oversight of securities laws of that country. And the tokens launched during these offerings are called security tokens because they are backed by real-world assets like company shares or LP shares, bonds, real estate or art pieces. Fundraising is raising capital for a business venture, project or idea. It is a crucial step for any business looking to expand its operations, develop new products or services, or simply maintain its existing operations. Various fundraising methods are available to businesses, and each comes with its own advantages and disadvantages. Three popular methods of fundraising are Initial Public Offering (IPO), Initial Coin Offering (ICO), and Security Token Offering (STO).

Steps for a successful ICO launch

In actuality, the ICO is a further application of the crowdfunding paradigm, in which investors contribute to a company’s current development in exchange for future rewards. ICO, STO, and IEO are different methods to raise funds through cryptocurrency exchange and they all have their fair share of pros and cons. An STO is similar to an ICO, but the tokens sold are considered securities and are subject to regulation by government authorities.

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