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A Difference that Goes a Long Way

13 Feb 2019

A Difference that Goes a Long Way: STOs vs. ICOs explained

ICOs have been quite a popular trend in the past few years, especially back in 2017. ICO, or Initial Coin Offering, is a term that the crypto community used for token sales that were made by startups in order to gather funding for the development of their project. While the ICO model was since proved to be quite flawed, and many believe it to be a thing of the past, it still survives to this day, although the hype regarding it has died down considerably.

The hype is not an uncommon occurrence in the crypto world, and 2017 has undoubtedly been a year when the crypto hype reached its peak. Back then, cryptocurrencies themselves exploded, and the market was flooded with new investors willing to support any project as long as there was a possibility of making a profit.

This is why numerous startups emerged, and as a result, the ICO trend became the crypto world's new major hit.

About ICOs

As mentioned, ICOs are a type of crowdfunding events that were inspired by IPOs (Initial Public Offerings) which are held on stock exchanges. The difference between them is that ICOs do not provide investors with ownership of the company that is offering the coins, and instead, they come up with white papers which explain their projects' goals. Investors are then expected to read the white paper and determine whether or not they believe that the project has a future.

Those who are optimistic regarding the idea can then invest in it in exchange for coins, with the belief that the coins will hold actual value someday. While the concept itself is interesting, it is clearly risky, as there is no guarantee that investors will see returns on their investments. Furthermore, after the hype swallowed the entire crypto space, a lot of scammers emerged with fake projects, and as soon as they received an amount of money they were satisfied with, they disappeared, leaving the investors confused and angry.

The lack of regulations made this not only possible, but also quite easy, and many optimistic investors had to experience the realization that they were scammed. This eventually sparked the mistrust towards ICOs, and those willing to invest learned to carefully consider every aspect of every project before they gave up their money in exchange for potentially worthless tokens.

The trend was believed to be extinct in 2018, although it can still be encountered today, like in the case of a recent BTT token sale performed on Binance Launchpad.

About STOs

STOs (Security Token Offerings) came as an alternative to ICOs, and many see the STO trend as a spiritual successor to the ICO model. They work in a similar way in the sense that they offer tokens to a wide audience. However, unlike ICOs, STOs are offering securities represented by tokens, which requires the company offering the coins to register in accordance with the SEC's guidelines.

STOs have attracted a lot of attention, and while they did not spark a hype that surrounded ICOs, they are more secure an investment than ICOs ever hoped to be. In addition, experts feel confident when it comes to STOs, with some of them predicting that their market cap might reach as much as $10 trillion by the end of 2020.

Of course, STOs have their negatives as well, such as the administrative burden and additional legal costs. However, this is often overlooked as the investors' security is typically seen as a priority. Another downside is that security tokens are still not particularly attractive to most major exchanges, although this is expected to change in the future.

Exchanges are interested in STOs, although there is still the regulatory issue that needs to be resolved before they can pledge their full support to them. However, many of the large exchanges are known to be among the major STO investors, which shows that the sector could be the next step in crypto evolution.


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