[STO] Security Token Offering, the Alternative Method for ICO!

Hello. I’m Jamie from Delio.

Seeing how the wind is getting colder, the winter must be coming!

At this point where the trend of ICO has been calmed down a bit you might have seen articles or journals related to STO! Today I’m going to explain what STO is and why it is receiving attention.

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1. What is STO(Security Token offering)?

Security Token offering is a method of collecting foundation money by issuing security tokens that can be given with fair value following the relevant laws, and distributing profit to investors. This means the share of assets of the token issuer, and depending on the amount of tokens they own, the may take their shares of the profits the issuer gained or receive management rights.

To help your understanding, we have to understand the concept of utility tokens that current ICO issues the most, and the concept of security tokens talked to be the alternative for ICO! Let’s take a brief look of them.

1.1 Utility Tokens and Security Tokens — Utility Token

Utility token is a form of token the ICO is currently issuing the most, and it refers to coins with rights to use products and services of a business. The value of the token is set by the law of demand and supply, one may sell their tokens at higher price than the price at ICO, but it is possible that the value might drop. It is often compared as Coupons, Gifticons, or ‘Acons’ of Cyworld. — Security Token

Security Token refers to tokens with ownership of assets of a specific corporate. It can be said that it is a form of share that the corporate issues, such as ownership, distribution, etc. Like distribution of shares, you may receive some portion of the profit made by the issuer by owning security tokens. Stock tokens mainly divide into ① Debt Tokens, ② Equity tokens, ③ Derivative Tokens, etc.

Now that you have learned about the concepts of utility tokens and security tokens, it would be easier to understand Delio’s Stable Stake Coin!

Different from Stablecoins like Bitcoin, Ethereum, or Tether, Delio uses a different form of coin called “Stable Stake Coin”, or SSC in short. SSC is a decentralized payment token that consists of a combination of DELO tokens that has characteristics of utility coins, and DELIO Tokens that has characteristics of security tokens, so that it satisfies price stability and investment value.

2. Why is STO being a trend?

It’s safe to say that year 2017 is the year of ICO, as ICO has been expended gradually as the method to collect foundation. But it seems that they’ve found ICO rather skeptical. It is due to negative reviews like not being able to protect the investors, risk of loss due to decline of the value, and a few fraudulent scam projects.

As ICO investors voiced concerns about the risk factors, STO the new method of token distribution is emerging as the alternative method for ICO.

* ICO(Initial Coin offering): Method of financing the project by issuing blockchain-based tokens.

* Scam Project Cases) Centra Coin that used ICO to finance about 32million dollars, the Eat and Run Scandal of Cryptocurrency Exchange Pure Bit

Then what would be the security tokens’ characteristics that differ from utility tokens traded via ICO?

Let’s assume that the security token is being issued in USA. Then it needs to be listed on US Securities Exchange Committee. As the security token itself is acknowledged as a form of stock, and it is issued within the range of related Capital Market Act, the uncertainty is comparably low, but it requires legal procedures. As it is based on real assets such as shares or real estates, it is more practical and safer, but as it means sharing the ownership of the company, the corporate does not hold freedom of management due to possibility of direct or indirect influence of regulation. It offers more opportunity for wide range of investors, and the investors can benefit from automated distribution of profit by smart contracts.

3. The domestic / oversea trend of STO

Last month, Bithumb, one of the biggest cryptocurrency exchanges in Korea announced that they will establish an STO exchange in US, and NASDAQ the second biggest stock exchange in the world said they are planning to establish STO platform; the people are growing more and more interested in STO.

Beginning by NASDAQ, Singapore, Australia, London, Canada, Malta, and other stock exchange of different countries are preparing security token exchange by test-issuing blockchain-based private equities, stock transaction settlement by blockchain technologies, test businesses, etc.

As for STO-based projects, there are Polymath that uses ST-20 Token Standard, and HARBOR with many investors including the CEO of bitGO, Andreessen Horowitz, Pantera Capital, etc. Recently, there is rumor going on that Airbnb and Uber sent letters to SEC to make security tokens. This shows how much the public interest is in Security tokens.

4. Closing Remarks

Many experts predict that the scale of about 10 trillion dollars will be financed by security tokens by 2020. Many institutes and enterprise are already preparing STO exchange platform development, but even if STO is implemented security tokens are hard practically hard to be realized in a short period of time because of the legal verification and regulation issues.

On the 16th, *SEC announced that they will apply the same regulation used for issuing standard stocks on STO, which brought up the public interest on STO-related legal issues in South Korea. There is no visual successful case yet, and as the government has basically banned ICO, we’ll still have to see if STO can be used as a new financing method. At this point, it is more important to fully understand security tokens so the token economy ecosystem can be well designed.

* Statement on Digital Asset Securities Issuance and Trading by SEC Click the link below to find about trading digital asset securities, exchange registration, Broker dealer registration, etc.

resources used

[1] http://www.fnnews.com/news/201811151647323434

[2] https://brunch.co.kr/@cryptoico/1

[3] http://coinreaders.com/sub_read.html?uid=2837&section=sc2

[4] https://ishowcrypto.tistory.com/235

[5] http://socialsave.net/221397052621

[6] https://www.decenter.kr/NewsView/1S78ZZ5RSP

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