Security Token Offering Market Conditions

Even though initially there were some problems, at the moment the Security Token Offering, or STO, market looks strong today. The growth in the number of successful token sales shows that this market may undergo noticeable positive changes in the coming years.

Currently, there are many ongoing and anticipated projects in Europe and, over time, the number of unsuccessful projects will decrease. The current level of “dead-end” STOs hover around 9%. This may cause concern, but the cancellation of 17% of projects acts as a sign of some improvement in the market.

Some regions of Europe are now more open to cryptocurrencies. For example, in Switzerland, the city of Zug, which has become home to many innovative startups from around the world. It is not surprising that the country leads in STOs, and a third of successful token offers have launched here.

Despite criticizing the current scenario, a STO is promoting several important technological innovations related to the securities industry and emphasizing the fact that you can receive real-time license fees and vote using tokens.

That’s why the Estonian company which set a goal to contribute to the development of the STO market and resolve the issue of why 26% of projects cannot find a token sale partner. They are going to create a Securities Exchange Platform where projects can hold their token sales.

5 Competitive Advantages of STO

1. Intrinsic value

Unlike utility tokens, which are intended exclusively for access to a service or product of the blockchain business, they do not have any other value. Security tokens are digital certificates that give ownership of:

● Direct or indirect participation in the management process of the company

● Virtual or physical assets

● Ownership of the company or its share

● A share of the profit of the issuing company

● Loan commitments

● Payment of dividends

2. More Legitimacy

Fundraising using a STO looks more attractive than ICO since it implies registration in the SEC.

For an investor, this is an advantage; registration with the SEC reduces the risk that the company will be a scam. Before giving permission, the regulator checks the issuing company in ways that are not accessible even to the most profound investor since they do not have access to the databases of tax, fiscal and other services.

3. More Transparency

Registering with the SEC means the disclosure of information about the company, including the state of its assets and management structure. Owing to this, an investor can conduct their investigation and verify the honesty of the issuing company.

The transparent market will bring the following consequences:

● Sound capital accumulation by issuing companies;

● Isolation of investors from scam companies;

● Establishing equal opportunities for all market participants.

4. More Liquidity

Blockchain technologies and security tokens will make it possible to transform traditionally illiquid assets, for example, real estate. Before people with large capital could only own them.

Security Token Offerings help to tokenize any asset — to divide ownership into thousands or millions of “digital” certificates, security tokens. After that, tokens can be sold to one person or organization, or to a thousand or a million people.

5: Restore Opportunity

Everyone familiar with cryptocurrency knows that if your BTCs are sent to the wrong address, or an empty address or are stolen, it is impossible to recover or return these coins. That is one of the main obstacles in the investment market for virtual assets.

However, a properly programmed STO may provide an opportunity to return lost or stolen tokens if their owner has passed verification and they were sold on the market without the owner’s participation. Now, such a function is practically not used, since many details need to be worked out that will exclude fraud on both sides. However, the fact of having such an opportunity is an improvement.

6: Efficiency and Scalability

Blockchain technology, along with Smart Contacts (SCs), can minimize most of the inefficient paperwork in the market. Below are some of the processes that will develop owing to the tokenization of securities:

● Automation of KYC / AML procedures: no need to spend money and time on checking each client

● Reduction of dependence on lawyers: most of their work can be “entrusted” too smart contracts

● Reduction of costs during the issue by eliminating the intermediation of banks

● Cost reduction due to the reduction of working staff

● Voting by “digital” power of attorney

● Simplification of accounting and audit processes

● Automation of dividend payments.

Securities Exchange Platform

The first and primary goal is to give way to new projects that lack support, connections and, thus, investment for future growth and development. It will act as an intermediary creating security token and prospectus (if needed) for the customer, and at the same time, offering the project to a large community of investors. In that way, investors receive legal rights and guarantees that the project will do their best to complete iteration and pay dividends.

Secondly, it’s vital to mention that security tokens are low liquid. The first reason is a problem in security exchanges that are still not running. The launch of this platform can contribute to a more global popularization of security tokens. In the future, they plan to provide the opportunity to trade through the application not only security tokens but also cryptocurrencies and maybe traditional stocks. If an investor no longer wants to hold a security token, they can freely exchange it on the platform on another asset.

They work to ensure that security tokens revolutionize traditional capital markets and companies achieve trust through cryptographic protection algorithms rather than through a rent-seeking intermediary.

Summing Up

In conclusion, we note that STOs are a new step in raising funds for blockchain projects, which gives more guarantees to investors than ICOs and fewer headaches than IPOs. Due to its features, this format can attract more funds to the cryptocurrency market soon.

According to The Merkle, 26% of STO (Security Token Offering) projects in Europe failed or were cancelled. In most cases, it was the matter of one factor — the team could not find a partner in the sale of tokens.