When we plan to invest in crypto-tokens, surely you will come across terms like STO and ICO marketing. Although you may think this is confusing at first. So lets us start with step by step introduction to it. As we begin with ICO stands for Initial Coin Offering, and STO refers to Security Token Offering. These crypto assets have their own different issues and come up with their own pros and cons.
Initial Coin Offerings:
Initial Coin Offering (ICO) is basically a method of raising funds in an unregulated environment. So for instance, a start-up sells a fraction of the cryptocurrency tokens to the people. To whom who have supported the project in the first phases. Basically, they gather the funds in fiat currency forms such as US dollar or Euros and also could be cryptocurrencies such as Bitcoin. When it comes to project itself, the start-up team firstly prepares and presents a whitepaper where all the details of the project are explained and also the purpose of the project will be mentioned there. Furthermore, the whitepaper will clarify why a crypto token is needed. Roadmap plays a very important role to fully complete the project.
Here are some other points the whitepaper clarifies:
- Project management details.
- The timeline for the ICO
- The currencies which are acceptable in the ICO
- The percentage of a crypto token to be sold in the ICO
- Allocation of the remaining tokens
So, during ICO when the project has received at least the minimum desired amount it is taken to its next level, which is “completion”. If in any kind of situations, the project team was unable to gather the minimum amount, they return it back to investors. Let’s outline the advantages and disadvantages of ICO’s.
Advantages of an ICO:
- Positive network effect
- Since there is no entry barrier to the project can potentially raise funds in a much easier manner.
- Basically, the team members use their own blockchains to manage the funds raised. And they will distribute the token accordingly in an automated and simple way.
- The marketing done for the ICO is solely digital by using the company website, social media, various messaging apps, and other online forums.
- It also becomes beneficiary for the investors when the crypto becomes popular, creating more liquidity to them.
- Effortless medium to raise funds for projects
- No middleman involved thus it eliminates any unwanted costs
- It is Simple to promote and market
Disadvantages of an ICO
- It may create uncertainty about the possibility of the product to be finished and ready as stated in the whitepaper.
- The Crypto market is highly volatile due to its nature.
- The ICO’s are not officially regulated by the officials so the potential investors do not have a legal alternative if funds are lost.
- Regulations can potentially cause problems.
So What is STO- Security Token Offerings?
STO can be said as similar to ICO in a way that it allows consumers to buy digital coins or tokens as a part of a public offering. Yet, unlike many ICO’s; STO’s are the sale of tangible securities such as assets, profits or revenue of the start-up.
Security Token Offerings (STO) also can be called as one of tech perception as initial coin offerings. It comes with countless of tokens required by an asset. ERC 20 is the popular one, whenever we talk about STO. Yet, it is not able to fill the gaps like securities, protocols, and congestion in the network.
Let’s outline the advantages and disadvantages of STO:
Advantages of an STO:
- Actually, STO’s are registered with the (SEC) Securities and Exchange Commission.
- More secure compared to an ICO as the SEC only allows projects that are reasonable and serious about the aim.
- The market experts are highly confident as the predicted market cap is $10 trillion by 2020.
- It emphasizes the ongoing trend
Funding is generally the critical obstacle for blockchain projects so, in conclusion, it can be said that both the ICO and STO’s are raising the potential of more blockchain projects to succeed. We can see that Security Token Offerings will be more and more present in the crypto industry. I believe that the STO concept is a powerful idea. It has a very crucial role in the alignment of the blockchain project with government regulations. It even has the potential to end the ‘’conflict’’ between the regulators and the blockchain community.