The ecosystem of growth finance has reshaped drastically due to the advent of new funding innovations like ICO and STO, which navigate the fundraising journey of businesses and open up new opportunities for adventurous investors.
The development of Initial Coin Offerings experienced a boom by introducing organizations to a network of investors and enabling them to raise billion of capitals. But almost after a year, this innovation burst abruptly because it was not complying with federal security laws, resulting in the spurred distrust of investors due to fraudulent and loss of money.
launch of a new groundbreaking way of crowdfunding, i.e. Security
Token Offerings is all set to disrupt the financial sector. Security
tokens are legally compliant and offer the same rights and
protections to the investors as in securities such as voting,
ownership and dividend rights. Tokenization generally entails issuing
tokens that represent underlying assets on a blockchain. These assets
can comprise regulated securities like shares, bonds, automobiles,
stocks, and other real-world commodities. STO allows businesses to
muster funds via equity crowdfunding or private placement through
tokenization of their shares. Besides, it offers significant benefits
to the organizations over the other fundraising methods.
technology paves the way for businesses to manage a plethora of
shareholders efficiently as well as roll back the cost of organizing
and executing a fundraising campaign. Moreover, it lowers the trading
cost of tokens as an online exchange eradicates the need for a broker
or an investment platform. The assurance of instant settlement and
zero counterparty risk also leads to expediting the investment
fundraising methods, the lack of liquidity hamstrung crowdfunding as
the absence of a viable secondary market had hindered the investors
for liquidating holdings. Similarly, VC investors used to find their
money tied into a blind pool for up to seven years or more.
In due course of time, the security token platform development facilitated 24/7 trading of digital assets across the globe. It also fostered the trust level of investors by enabling them trade bonds or shares issued by the organization anytime and anywhere in the world.
trading of security tokens has always been a cumbersome task. The
counterparties participating in this trading have to hire legal
counsel and other parties to ensure that the trade is complying with
laws and avoid frauds. With smart contracts governing the compliance
of security tokens, these assets can seamlessly be traded
cross-border with the costs of compliance being spread across all
Fundraising Network and Access
offerings have democratized access to investors and financial
landscape, unlike VC funds. This, in turn, has broadened the pool of
capital by procuring international money from professional and
institutional to retail investors.
technology coupled with smart contracts has the potential to
radically eliminate most of the paperwork and inefficiencies in the
financial space. Below is the list of the processes that will be
ameliorated by the tokenization of securities.
of KYC/AML procedure – no need to spend time and money on vetting
accounting and auditing processes
reliance on lawyers due to the integration of smart contracts
of dividend payments
accurate and fair asset valuations
These are some of the benefits of security token development encouraging businesses to count on this crowdfunding innovation and accelerate their business processes. All they need is a coherent roadmap and strategic approach to initiate their fundraising campaign with the objective of attracting more investors and escalating their project funding.