5 Benefits of Security Token Offerings
Security tokens are revolutionizing the way in which assets and investments are looked at. Tokenizing assets and putting them on to the blockchain is unlocking huge opportunities for both token issuers and investors.
The benefits attributed to the popularity and adoption of Security Token Offering (STO) include fractionalization of larger assets, increased liquidity, greater market efficiency and reduced issuance fees. Besides the benefits, another major reason leading to the shift from Initial Coin Offering (ICO) to STO development services is regulatory bodies narrowing down hard on ICOs.
Individuals embracing STOs are enjoying the following benefits:
The blockchain technology and smart contracts enable the law and ownership to be directly defined into a token. This means that the security token is able to execute, regulate and govern itself. For example, a security token development company can program the token to verify who can buy and sell the token. This can restrict token holders from sending the token to any address that has not passed the required verifications. Token issuers can, thus, rest assured that their tokens are held by only authorized investors.
In addition, certain restrictions can also be imposed on token transfer. For example, if investors are not permissible to sell their ownership stake for a certain period of time, the same can be encoded into the token. This would prevent the token from being traded before the specified time period.
The global trading of security tokens provides huge opportunities for issuers to tap into the international pool of capital and expand their investor base. The regulatory framework governing security tokens encourages investors to put their money into these tokens without any concern of being scammed (like in case of ICOs).
The fractionalization of digital assets is another major factor to bring in more investors to security token market. Asset tokenization enables investors to own a small fraction of a stock, piece of art or real estate. Without STO development services, access to these assets was limited to investors with large capital and ability to make long-term investments.
With security tokens enabling fractional ownership and lowering minimum investments, the cryptocurrency market can witness increased liquidity. Illiquid assets, or those that are not easy to resell, can enhance their liquidity on the blockchain by enabling investors to buy smaller stakes. For example, the owner of an expensive art piece is more likely to find investors interested in fractional ownership of art piece rather than the entire asset.
Furthermore, round the clock, global access to STO market contributes to increased liquidity of security tokens.
Unlike utility tokens, which represent future access to a product or service of an issuing company, security tokens represent the underlying interest in equity, dividends, profit sharing, voting rights and other benefits for the investors.
Simply put, a security token has intrinsic value. This means that the token already possesses some worth which is based on the value it provides to token holder, irrespective of potential value of the token.
Security tokens provide the investors with a legal right to ownership of the intrinsic value of the company issuing the tokens. They offer significantly greater value to token holders while reducing the risk.
The blockchain technology provides a uniform method for data verification and tracking, and its immutable nature prevents data tampering. The combination of all these attributes forms a perfect infrastructure to document ownership of security tokens in a transparent way.
Besides, STOs provide investors with complete, transparent information about the issuer – offering complete visibility on the number of tokens given, promised or otherwise discredited.
According to recent data analysis, security token offerings surged by 130% in the first quarter of 2019. It is envisaged security tokens would bring 10% of global GDP ($8 trillion) to the blockchain ecosystem by 2024. These numbers point toward booming STO market.
Individuals, seeking opportunities to capitalize on STO, must act now to enjoy the benefits offered by the market. Those planning to create their own security tokens to unlock better fundraising opportunities can partner with an experienced security token development company to navigate their journey in the right direction.