What is a STO (Security Token Offering)?

Security Token Offerings (STO) are considered ICO 2.0. But what are Security Token Offerings (STO)? How do they work? How to participate? What’s up with the new star in capital markets heaven? And does not STOs flourish the same fate as their unregulated counterpart, the ICOs? We clear up existing knowledge gaps around STOs and show what one can expect from the emerging funding method in the future.

For an STO definition, one must first ask oneself: What are security tokens? They are considered the second generation of crypto tokens. While ICOs are talking about utility tokens these days, security tokens are fully regulated and tokenized assets that have a clear investment focus. In essence, security tokens are blockchain-based digital assets that generally comply with the regulations of the respective securities supervisory authorities.

What is a STO (Security Token Offering)? ICO vs. STO

After the bursting of the ICO bubble at the end of 2017, it was about the token-based collection of venture capital in the medium term. The problem then: The token economy was still in its infancy, there were hardly mature business models and the lack of regulation seduced fraudulent companies to scams.

STOs are securities and thus legal

Sind Security Token Offerings legal? Genau hier liegt der Unterschied zu ICOs. Denn Security Token räumen Investoren die gleichen Rechte ein wie traditionelle Finanzmarktemissionen. Aus diesem Grund müssen Wertpapieraufsichten wie die BaFin oder die SEC Security Token Offerings zunächst genehmigen – genau wie Kapitalmarktprodukte aus dem traditionellen Finanzsektor. Ist das geschehen, ist die Durchführung eines STOs legal. Demgegenüber ist der rechtliche Status von Utility Token nach wie vor ungeklärt.

Security Token verfolgen ein Funding-Ziel; im Prospekt muss klar definiert sein, woraus sich der Wert der Geldanlage speist. Im Gegensatz zu Utility Token sind Security Token also behördlich abgesegnete Wertpapiere in Tokenform.

Digital coupons vs. digital securities

While Utility Token is a kind of digital coupon, STO’s financing methods are clearly labeled as such. For ICOs, the reasons can be manifold. For the most part, companies are linking utility token-purpose services, such as the right to use a platform.On the other hand, the reason for implementing an STO is the generation of equity or debt capital. Security Tokens are not tied to usability on the respective platform, but pursue a funding target. The benefit: While ICOs are typically reserved for companies that are already active in the blockchain ecosystem, STOs can be performed by any company.In particular, medium-sized companies that were previously denied access to the stock market have STOs as an effective means of raising capital.