Security Token Offering Will Be The Next Fund Raising Method?

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• Welcome In OnGraph Technology

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Security Token Offering Will Be The Next Fund
Raising Method?

• Earlier the start-ups and entrepreneurs have only
  way available is to connect with angel investors
  or VC (Venture Capital) to get seed funding for
  the new business ideas. However, established
  businesses have the option to connect with IPO
  (Initial Public Offering) to raise fund for the
  company. Then Crowd Funding comes.
• Though every way to collect fund to the business
  has associated benefits and limitations, but none
  come close to the amount crowdfunding has been
  able to raise. ICO (Initial Coin Offering) the
  project leverage the advantages of blockchain
  development services has raised crowdfund in a
  matter of a few weeks and even in days. Now we
  have Security Token Offering (STO) that is
  available with features of traditional
  fundraising methods such as ICO and IPO.

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What is an ICO?

To understand why we needed Security Token
Offering when we have ICO to raise crowdfund,
let's recall ICO and how does it work?

ICO or Initial coin offering or utility token are
distributed as tokens to the general public at a
specific price point. ICOs are also known as
utility token because these do not hold any
value. ICO promise the future adoption of
product, meaning when a considerable number of
the user use the token. However, the true value
of the token determined only then. In simple
words, the true value of the token is based on
its future utility.

The project team decides the base price of the
token considering the future market and size of
potential market. However, there is no specific
regulations and defined rules to determine the
value of the token. That is the thing which
attracts start-ups lacking in a proven business
model, customer base or a working product.
Therefore, these companies do not adhere to
regulatory rules that calls to time and money to
achieve compliance.

Lack of regulations and compliance to conduct ICO
invited fraudulent activities. Using fake social
media profiles, a detailed whitepaper, a super
impressive website and putting money in
promotion, start-ups have raised millions and
then run away with all the crowdfundings. In
2017, 80 of ICOs were scams. This makes
investors skeptical about investing in ICO.
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Then, what is a Security Token Offering?

Instead of utility token, STO tokens are
distributed. STOs are secured with tangible
assets such as real estate, stocks, bonds and
others. When these tokens are backed by stocks
and bonds, these are recognized as equity tokens
because these are entitled to a stake in the
business.

These tokens are also classified as 'securities.'
When STOs are launched in any country and are
targeted to, they come under the securities
regulations to that country. For instance, STO
must adhere to regulation imposed by the American
Securities and Exchange Commission (SEC) in the
U.S.

STOs always come under rigorous auditing by legal
authorities thus it reduces the chances of an
STO being a scam is almost zero. Due to the
regulations, the investors that participate in
STOs have to prove identity, thus only accredited
investors will be allowed to buy security tokens.

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Conclusion

If you want to develop an STO, then you can opt
for the services of Daffodil Software. We have
both technical and legal expertise to make your
STO event a success. For a complimentary
consultation session, click here.

STO or Security Token Offering is developed using
the features of ICO and IPO. You can hire
blockchain developers and since STO development
is not very costly and time taking as compared to
launching an IPO. On the other hand, it provides
better security and authenticity to the investors
as opposed to an ICO.
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