STOs (Security Token Offering) is one of the fundraising processes carried out by smart contracts, just like ICOs (initial coin offering). It is an alternative financing tool for companies to raise capital and investors to invest more safely and transparently. Within the scope of STOs, funds are collected for projects by issuing tokens to investors. Although they have similarities with ICOs, the most crucial difference here is that there are usually no physical assets or securities behind tokens in ICOs, while securities such as stocks, bonds, or other instruments are involved in STOs. Therefore, STO processes are subject to capital market legislation and supervision.
According to their economic functions, tokens are divided into three payment, utility, and security (asset/investment) tokens. Security tokens provide their holders with rights and powers such as ownership in a company, participation in profit distribution, management, and voting rights. These tokens are traded like stocks or debt instruments and have asset value.
Unlike traditional securities stored on paper or in central electronic databases, security tokens are created and recorded on the blockchain. STOs, where security tokens are issued, allow companies to share shares and raise funds digitally.
STO processes are operated by smart contracts that provide efficiency and automation. Securities tokens are created with ERC 20 smart contract protocols. In such smart contracts, the proportional ownership percentage of the digital asset can be seen. For this reason, it is possible to code smart contracts in accordance with the regulations of regulatory institutions and organizations. In addition, obligations such as KYC (Know Your Customer) and AML (Anti Money Laundering) can be integrated into this smart contract (for safe, practical, and fast KYC solutions, In addition, all transactions carried out during this fundraising process are kept transparently in smart contracts. Thus, issuers, investors, and regulatory authorities can follow the process comfortably.
When an offering takes place, it is necessary to make a case-by-case assessment in determining whether the token issued is a service token or a security token, as is often the case in ICOs, at the end. Unlike ICOs, in order for a company to offer security tokens to its investors, it is necessary to comply with legal regulations and especially to have the permission of the capital markets regulatory institutions. For this reason, they are more transparent compared to ICOs and considered safer, especially for investors.
STOs, which came to the fore, particularly after 2018, and have the potential to eliminate the shortcomings of ICOs, are a way to raise capital safely and transparently. It allows investors to invest in assets that have real value and comply with the law. Compared to traditional IPOs, STOs are less costly because they eliminate the need for intermediaries. STOs can be used to raise funds for various purposes, including developing new products and services, expanding into new markets, and acquiring other companies.
When an offering takes place, it is necessary to make a case-by-case assessment in determining whether the token issued is a service token or a security token, as is often the case in ICOs, at the end. Unlike ICOs, in order for a company to offer security tokens to its investors, it is necessary to comply with legal regulations and especially to have the permission of the capital markets regulatory institutions. For this reason, they are more transparent compared to ICOs and considered safer, especially for investors.
