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How are STOs better than ICOs?

25 Feb 2019

ICOs (Initial Coin Offerings) were one of the biggest hits in crypto space of 2017. They allowed countless startups to emerge and gather funding for their businesses in exchange for new coins. The trend was believed to have died out for several reasons in the second half of 2018. However, before it ended, it managed to raise quite a lot of money in 2018, despite the bearish market.

As the crypto winter continued, there were fewer and fewer investors willing to invest in new projects. Furthermore, numerous scams and the crackdown from the US SEC discouraged them further. The figures continued to drop, and soon enough, many were quick to call the death of the ICO model. These days, ICOs still live, although there are very few of them.

However, they are also not the only option anymore, as a new trend started picking up — STOs (Security Token Offerings).

STOs vs. ICOs

One of the biggest problems with ICOs was the SEC's opinion that pretty much all altcoins are securities since they promised profit in exchange for investments. If the coins were really utilities, as they were registered as, they would simply serve as currencies, and not a method of increasing one's wealth.

Selling such coins in ICOs meant trouble for everyone, including companies, buyers, and even exchanges. This is where the STOs come in as an alternative, as they offer securities without trying to present them as utilities. As such, investors know what kind of tokens they are buying, while the companies remain true to regulations.

Under current laws, STOs have to follow KYC procedure, meaning that only verified investors can proceed with their investments. This was introduced to prevent fraud, financing terrorists or criminals, as well as to prevent money laundering.

Furthermore, by investing in securities, investors are also protected, as their investment no longer depends on the potential success of the coin. They gain something in return, which is typically ownership rights to the underlying asset that gives value to the coins. This can be anything, including shares, real estate, gold, or anything else.

Other benefits of STOs

While this already sounds much better than ICOs, there are further benefits to STOs. One is the fact that it is easier and cheaper to invest in them than to invest directly into stock. When investing in stocks, there are numerous intermediaries like brokers, banks, custodians, and alike. All of them will require a cut, meaning that investors are going to have to deal with high fees and a lot of paperwork. This is not the case with STOs, as no middleman is required to make an investment.

Another important aspect is the speed of the process of investing or using tokens. Speed is very important these days, as everything — online or offline — needs to be done within seconds in order for people to be satisfied. This is why old-school types of trades are no longer acceptable, as they can last for hours, or even days. Meanwhile, blockchain technology, which is the tech that both ICOs and STOs are using, can conclude any type of trade within minutes, and sometimes even seconds.

The STO trend is only starting to pick up, and it is still nowhere close to reaching the ICOs popularity in the model's days of glory. However, it is expected that this will change in time, and that STOs will be the next big hit in the crypto space. Whether or not this is true remains to be seen. However, it is undeniable that STOs offer more than ICOs, and that they are unlikely to attract the regulators' wrath in the process.

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