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Investing in Security Token Offerings: Minting the Way to Blockchain Investments

— December 11, 2019

STO’s based on the blockchain offer new business opportunities, distinct forms of investments, and further unlock possibilities that are currently unavailable in our traditional markets.

Blockchain a.k.a distributed ledger technology, offers significant advantages like higher security, efficient processes, and reduced costs as compared to our traditional systems. With the strong fundamentals that blockchain has, this technology is currently being explored for a number of industries. Some of the sectors include real estate, supply chain, agriculture, healthcare, and even governance. 

The future potential of blockchain is huge. Major companies like IBM, Microsoft, Amazon, Walmart, Facebook, Google have already started developing solutions for blockchain. Moreover, statistics reveal that the blockchain technology market is expected to reach $24 billion by 2024. Even the World Economic Forum suggests that 10% of the World’s GDP will rest on the blockchain by 2025. 

However, the figures do not reveal the whole story. While blockchain technology is a game-changer, the investments made in the field are wrongly perceived. This has resulted in a list of scams, hidden behind the name of Initial Coin Offerings (ICO).

Security and Legal Compliance in Blockchain Investments

Initial Coin Offerings (ICO) is a new mechanism to raise funding for crypto and blockchain projects. However, some of the projects that raised funding through cryptocurrency utility tokens, proved to be fraudulent. 

The ICO projects that attracted investors around the globe raised billions of dollars between the years 2017 and 2018. However, 80% of these projects were identified as scams. Now, in 2019, thousands of them are already dead. 

Additionally, the unclear legal framework surrounding utility tokens and ICO’s has ultimately resulted in projects being shut down by the government. For blockchain investments, specifically, when it is at such a primitive stage, it is important to understand the varying legal compliance for different jurisdictions. Lack of clarity on the legal framework for ICO resulted in sealed bank accounts, money laundering, and criminal acts committed by the founders. 

So, given the history of blockchain investments, one should not engage in such projects at all? Well, not exactly. 

After the rise and fall of ICO, an innovative approach to blockchain investments was implemented through Security Token Offerings (STO). In contrast to utility tokens offered by an ICO, security tokens are backed with a tangible asset like real estate, or company profits and shares. 

Investing in Security Token Offering (STO)

After the high-profile cryptocurrency scams of ICO’s, the year 2019 has seen a rise in the investments made in Security Token Offering.

A security token has real-value which is represented by the underlying asset, namely bonds, stocks, real estate property, funds, etc. The token raised on blockchain technology provides the enterprise with an innovative funding mechanism. Subsequently, the security token also presents investors an opportunity to receive shares of a company or even a property. 

Furthermore, unlike a utility token, security tokens hold monetary value and represent fractional or complete ownership of a real-world asset. More importantly, STO’s comply with legal and regulatory governance such as KYC, AML, background checks of investors, etc. As compared to ICO’s, investing in security token offering is much safer, more secure, and legally regulated.

Bitcoin stats on a laptop; image by Chris Livernani, via
Bitcoin stats on a laptop; image by Chris Livernani, via

Besides this, STO’s based on the blockchain offer new business opportunities, distinct forms of investments, and further unlock possibilities that are currently unavailable in our traditional markets.

Benefits of Security Token Offerings

Investing in Security Token Offerings (STO), combined with the agility of blockchain technology, allows significant benefits.

  • Increased Access to Global Markets: Since security tokens are basically digital currencies with value, they can be easily traded on global markets. Moreover, it offers opportunities to exchange real-world assets, even internationally, that cannot be traded with our traditional processes. 
  • Fractional Ownership: An unheard of concept in our traditional markets, STO’s open up the possibility to own a fractional piece of an asset, thereby giving the chance to small investors. Further, this allows inclusion for people who want to invest in assets like real estate property or art collectibles.
  • High Liquidity: By offering fractional ownership, it also lowers the barrier to minimum investments. As people can buy smaller stakes, the number of investors will subsequently increase. This allows more liquidity to flow into the markets. 
  • 24/7 Markets: Blockchain technology allows the trading of securities round the clock. This removes the inefficiencies and issues of restricted access currently faced in our present markets. 
  • Efficiency and Transparency: The key benefit of a security token is that they are legally regulated. Hence, STO’s allow an investor and the issuer to get complete information about each other on a fully transparent basis. Besides this, blockchain enables instant transfers of securities on a secure platform. 

Final Thoughts

The present scenario in blockchain investments suggests a shift towards security token offerings. One of the key fundamentals of a security token is that it possesses intrinsic value. Additionally, an STO also holds real benefits and with blockchain, which presents us with unique opportunities. Overall, looking at the current market and interest of STO, it is fairly certain that they are here to stay!

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