Home
News
- 1 Technology is evolving and crypto is venturing more into finance, they have presented investors with ways they can raise funds to grease their projects.
- 2 STOs and ICOs are ways in which companies can raise funds but it is important to know their differences.
Fundraising might be a hard task for companies, and while the cryptocurrency world is also changing rapidly, let’s look at ICO and STO. ICO offers companies and investors a platform where they can raise money and receive crypto by selling their cryptocurrencies and later receiving ICO. Companies sell their crypto and investors receive cryptocurrencies as a reward for their contribution. In the bigger picture, ICO is the version of IPO (Initial Public Offering) in the traditional market.
STOs, on the other hand, offer security and ownership to investors. When companies raise money, the money that is sent to them by investors is tokenized by STOs. These present the companies with security to their capital and tangible ownership rights.
It is important to know the key differences between STO and ICO. There are changes in crypto and new terms are being developed daily, read on to know the difference between the two terminologies.
What are ICOs and STOs?
ICO is an abbreviation of Initial Coin Offering. It is a cryptocurrency kind of coin that is employed by companies when raising funds. Investors later receive tokens for the good work they did. Investors receive crypto tokens after they send funds to the company. Companies use this technique to raise capital faster. They sell their cryptos through crowdfunding which is the simplest form to fuel their projects.
The tokens that investors receive function like a unit of currency. Moreover, the token’s values increase as time goes on. It is advantageous to investors since the company issuing the tokens allows them to access certain features of the project. ICOs help investors raise capital for ongoing projects where raising capital would be hard.
STOs stands for Security Token Offering. They are digital tokens that are supported by blockchain technology and are in the form of assets. As the term says, they offer security to digital tokens but still aid in digital funding. They are similar to ICOs since they both have monetary value but STOs are not traded on token exchanges. They can only be exchanged on exchanges that are regulated.
STOs offer ownership to companies. They are certified for owning either stock, bond, or gold. Unlike regular ownership of stock where certificates are issued, STOs are recorded on blockchain technology. The ownership is presented in token form.
Difference Between STOs and IOS
Some differences that distinguish STOs and ICOs broadly are three; regulation, trading venues, and asset backup.
Regulations
Regulation is the main difference between STOs and ICOs. STOs are regulated and provide security to the public while ICOs are unregulated coins. ICOs are not regulated by the SEC, therefore they do not fall under any law, which means they are decentralized.
STOs, on the other hand, offer security to companies and investors as they follow rules and regulations provided by the SEC. Under STOs, the tokens should compel ownership which is registered in the Blockchain ledger. Therefore, they are required to register with the SEC and follow each rule issued by them including KYC regulations.
STOs are fundraising methods that require investors to follow regulation and they are backed by stocks and bonds which serves as security assets. ICOs are fundraising procedures that are unregulated and marketed to crypto enthusiasts.
Trading Arena
This is another difference between STOs and ICOs. Once the companies have raised their capital they need to exchange them, but the two tokens are limited. ICOs are not regulated and therefore they can be traded in any Blockchain-supported exchange like a Decentralized Exchange (DEX). STOs on the other hand are limited, they are required to be exchanged in regulated exchanges only; for instance Alternative Trading Systems (ATS).
This is the only exchange where security tokens are exchanged, additionally, it does not support digital assets. Moreover, every transaction is monitored by the SEC, which assures investors that their security tokens are secured. However, the process of transactions and investments is longer but worth it.
Asset Backup
ICOs are tokens that are supported by blockchain technology and are intended to raise capital for companies. ICOs are not backed up by any security assets like gold and stocks. They are only intended to raise capital for projects supported by blockchain. STOs on the other hand are backed up by security utilities.
The STOs are more secure, they give ownership to investors of underlying assets. Additionally, security tokens are transparent to investors. They provide investors with details concerning their investments.
Importance of ICOs and STOs
ICOs and STOs were both developed to enhance the crypto world. They have provided security and opportunities to companies and investors in cryptocurrencies.
ICOs were majorly developed to provide opportunities to companies or start-ups. Through ICO tokens, individuals can raise capital and propel their projects to the next level. This process gives a sense of belonging to anybody. Companies and investors are limited, they can start anytime and there is no age limit. This is an advantage to start-ups, coming up with capital to saturate an investment is not an easy task, however, ICOs present an opportunity for individuals to venture into business.
STOs have presented investors with unlimited security for their businesses, and investors are given a sense of ownership of the company’s base. However, they provide liquidity and security to their assets. Security tokens are backed up with assets which increases the value of investor’s security tokens as time goes on. Additionally, security tokens offer transparency to investors by reducing intermediaries from accessing profits.
Conclusion
ICOs should be regulated to ensure that there is security for start-ups in their business by regulating ICOs. STOs have provided fundraising procedures that are regulated and thus attract investors. This has raised institutions’ eyebrows as investors have been presented with ownership and asset backup that is tangible.
Andrew is a blockchain developer who developed his interest in cryptocurrencies while pursuing his post-graduation major in blockchain development. He is a keen observer of details and shares his passion for writing, along with coding. His backend knowledge about blockchain helps him give a unique perspective to his writing skills, and a reliable craft at explaining the concepts such as blockchain programming, languages and token minting. He also frequently shares technical details and performance indicators of ICOs and IDOs.
