Home
Glossary
Security Token Offering (STO)

Security Token Offering (STO)

Beginner

What Is an STO?

A Security Token Offering (STO) is a method of fundraising that involves the issuance of security tokens. Such tokens represent ownership in an underlying asset, such as equity, debt, or real estate. STO events offer tokens that are backed by real assets, offering investors ownership rights and potential dividends.

How Do STOs Work?

STOs begin with a company deciding to raise capital by issuing security tokens. The company must first comply with regulatory requirements. This ensures that the STO adheres to existing securities laws.

Then, the company selects a blockchain to issue the security tokens. Security tokens are typically created using smart contracts that encode the terms and conditions of the security, including ownership rights and dividend distribution mechanisms.
Investors can purchase the security tokens either using fiat or cryptocurrencies. The raised funds can then be used by the issuing company for business development, project financing, or other activities that require initial capital. In return, investors receive tokens that represent a share in some underlying asset.

Benefits of STOs

STOs enable fractional ownership, allowing investors to buy smaller portions of high-value assets, such as real estate, making such investments more accessible. They also offer increased liquidity, as tokens can be traded on secondary markets, allowing investors to easily buy and sell their assets. Transparency is another key advantage, as all transactions are recorded on a public ledger that can easily be accessed through the Internet.

Conclusion

A Security Token Offering (STO) is a method of raising capital by issuing security tokens that represent ownership of real assets. STOs offer benefits in the form of increased liquidity, transparency, and fractional ownership.