Security Token Offerings ("STOs") emerged in 2017 as a new means for projects to raise funds, and they did so dramatically – taking in over $5 billion in the first year.
Less than 1% of startups seeking traditional funding get money from angel investors and just 0.05% receive venture capital funding. Among STOs companies, 25% meet their funding goals, and this is the case even though the average size was only $15 million in 2017 and they've more than doubled that in 2018 and might triple this year.
A security token is a regulated digital asset lying at the intersection between traditional financial assets and digital currency. Simply put, if Bitcoin is “programmable money”, a security token is “programmable ownership”. Any type of asset that can be owned (e.g. stocks, bonds, real estate, art, private equity, or even cars) - whether tangible or not - can also be tokenized. One of the most exciting features of a security token is its intrinsic value; the mere fact that it is asset-backed, thus providing investors legal rights to ownership.
Traditional securities bought by investors are difficult to exchange into cash without considerable effort. Security tokens are looking to solve this issue by bridging the gap between the crypto market and traditional financial markets. They enable easy asset trading by unlocking liquidity while also protecting investors.
Security tokens can attain an incredible degree of liquidity because they self-execute. With smart contracts in place, actions are carried out automatically and autonomously. This feature alone provides investors with frictionless, greater freedom when looking to move and control assets.
For investors, STOs provide new opportunities to buy security tokens backed by real-life assets. For startups, running an STO could help access more trustworthy funding that guarantees future success.