The rise of Bitcoin in 2009 popularized crypto and blockchain across industries. The distributed ledger and blockchain technology have garnered mainstream traction in finance. Large organizations across different industrial sectors have entered the blockchain space. Global companies such as Facebook, Twitter, Square, JP Morgan, etc. have adopted blockchain technology. Not only early adopters, but public figures with massive net worth have lately warmed up to yet another blockchain-based application – NFT. It is evident from the progress that a bright future lies ahead for crypto. With the ever-growing innovation in payment systems, it has become more accessible. The tokenization of assets aided by Security Token Offering development companies has taken the finance sector by storm. And with the liquidity-enhancing capabilities brought about by tokenization through security token offerings, blockchain has become unstoppable.
What is a Security Token Offering?
Security Token Offering is a method of tokenization of tradable financial assets and offering them to the public under regulation. A security token represents a proprietorship of a stake in an asset. For example, shares in a company, or financial bonds, or any asset worth money. The security token entitles its holder to earn profits off of the asset. It is a unique token issued on a blockchain. A security token offering is when the security token of a share in an external asset or company is given to the public.
Global entities like the governments of various countries and accredited enterprises issue these tokens. They serve the same purpose as bonds, stocks, and other equities. Unlike other tokens, the public can invest in security tokens and be sure of profits. Recently, the World Bank along with major real estate entities have entered the STO venture.
A business willing to distribute shares of the company to investors may use a security token. It equates to the benefits expected from traditional securities like shares and dividends. The added advantage of the STO technology is its underpinning of blockchain. While profit and security are maximized, the onerous waiting in conventional processes is completely removed.
The Evolution of STO
The advent of Security tokens could be attributed to the disregarding of the traditional IPO. Initial Public Offering or IPO is a form of raising capital globally under strict regulations. However, the IPO process is excruciatingly tedious, long, and expensive. Though it raises money from global investors that are verified and legitimate, it’s inefficient in terms of technology. Companies look for a regulatory option that is not as extensive and lengthy yet highly secured. This is where STO and Security Token Offering Development companies come into play.
In simple terms, security tokens are tradable tokens that are worth money. They are financial assets, for example, a share or a bond from a company. Security tokens can be considered as a form of investment. They are highly effective in paying dividends, or interests in a way that promises future profit. They are also meant to be a revolutionary way of sharing profits.
STO is completely regulated and has zero risk of scams and manipulations backed with blockchain technology. Enterprises that wanted to avoid the expensive and long regulatory path of IPO, now just opt for STO instead. This new type of offering entails the good features of IPO along with added advantages of blockchain technology. It ensures fast and easy executions with no chance of scams, frauds, or negligence. It is compliant with AML or Anti Money Laundering requirements and security laws. Every individual partaking in it is considered an investor.
Types of security tokens
As per market availability, the security tokens are of five different categories:
- Equity-based tokens – These are stocks, capitals, treasury stocks, etc.
- Asset-based tokens – The artworks, real estate, luxury goods, etc. fall under this category.
- Debt-based tokens – These are for mortgages, loans, bonds, unsecured debts, etc.
- Derivative-based tokens – These tokens are still in development. Variegated models are soon to see the light of day.
- Fund-based tokens – These are shares from Exchange Traded Funds and general funds.
Advantages of Security Token Offering
STO comes with a plethora of advantages. To begin with, they offer a risk-free environment by implementing regulation and oversight. Security Token Offerings are always traded on verified exchanges. Other than that, STOs have expanded the markets for investors since assets of every class can be tokenized. It is also beneficial for the fundraisers to open up to a wider audience of investors. Digital securities marketing and safe transfer across borders is an undeniable boon of STO.
Under the traditional capital market methods, ownership of many assets becomes impossible to split or transfer. Such assets include fine wines, works of art, real estate, intellectual property rights, private markets, etc. However, this is not the case with Security Token Offering.
With STO these asset classes can be easily fractionalized and traded using smart contracts. A wide distribution of parts of each asset is plausible thereby inviting a larger pool of potential investors. For example, in real estate alone, the private market is 32X bigger than the public market. This renders such assets historically illiquid. However, with STO, more people can invest in the same property with the security of profit backed by blockchain technology.
The best part is STO benefits go beyond public issuances of debt or equity. Private placements can also use the advanced transparency and efficiency of tokenizing security. This reduces the high costs that a public offering incurs. Instead, STO has made cost-effective leverage possible. Besides, record immutability is another strong security feature that Security Token Offering implements.
About STO Development Companies
Investing in STO for a profitable future is now easier with Security Token Development companies. For example, an amount of $5000 is not enough for the University education of your child, but STO investment is here to change that. The advent of blockchain technology has helped establish multiple Security Token Development companies worldwide. Below is a comprehensive list of the best STO development companies all across the globe.
Top 5 Security Token Offering Development Companies
- HashCash Consultants – HashCash Consultants offers top-tier STO services and is the best in the market. Its STO technical team uses its token issuance platform, HC NET to create security tokens. HashCash’s legal team acts as the legal representatives of its clients regarding the STO regulations. Additionally, there’s a user-friendly landing page encouraging token sale via tokenomics and detailed roadmaps. It also provides clients with a white paper service. It contains accurate market research, market solutions, tokens details, roadmaps, and how to raise funds. HashCash also makes sure to take care of the client post STO launch with ample technical support.
- PolyMath – PolyMath uses blockchain to offer Ethereum-based solutions for security tokens. They use their PolyMesh technology for trading security tokens. It ensures the security and easy liquidity of STO assets under certain guidelines. The platform has its own native token called POLY. It has four layers of which make sure compliance with guidelines: protocol, application, legal, and exchange layers. The website enlists a large number of tokens and there is more to come ready for launch.
- Securitize – Securitize uses end-to-end tools to modernize capital market investment using blockchain. The platform also provides transfer-agent services authorized by the SEC. It incorporates third-party applications letting users customize their projects. Securitize implements efficient security protocols for client funds ensuring risk-free trading space.
- CapexMove – CapexMove offers a flexible debt tokenization service. It is beneficial for issuers and stakeholders as blockchain implementation eradicates high expenses. It allows token shifting to secondary markets rendering trade transparent. CapexMove uses the ERC20 protocol to enhance its trade security features.
- BankeX – BankeX provides higher liquidity for high assets. The platform has 50,000 active users and they support 15 types of digital assets. The platform processes over 14k transactions per second. It offers 50+ services integrated with digital asset custody.
The high bar of liquidity and revenue distribution is not the limit of security tokens. Security Token Offering or STO has a huge potential for investments. Small investors in these security token areas can sell off in various ways. Like dividing the portions in full equity or a tiny part of their interest in a secondary market. Brokers can sell the voting security tokens in bundles without any arduous effort. Only imagination is the limit.