So far, even non-crypto worshippers are either aware of or have heard about a fundraising initiative known as an Initial Coin Offering (ICO). However, ICOs have gone through turbulent times in the recent past, often due to fraudulent feedback from the mainstream media and a low success rate of shutdowns from the Securities and Exchange Commission – with accusations of fraud. A number of countries have also banned ICOs, like South Korea. So, blockchain enthusiasts are looking for a more satisfactory means of funding blockchain innovation that is more legitimate. Security token offerings, STOs, are therefore the new kid on the crypto block.

Business Insider reports that in spite of a lack of regulation, ICOs still fuel startups with a massive $5.6 billion, so what next? Many industry experts and enthusiasts believe the answer is STOs.

What Are STOs and How do They Work?

One of the industry experts, Overstock CEO Patrick Byrne, says that STOs are a safer way of raising money through crypto to fund blockchain ventures. The CEO told CNBC,

It’s the new term. The industry is distinguishing very clearly now between ICOs and STOs.

Recently, Overstock announced a $2.5 million investment in three-wheel car start-up Elio Motors. The announcement also coincided with the launch of ElioCoin, which will fund the production and the company, making it clear that it was a “security token offering”. The industry figurehead argues that STOs are a clever offering that present a whole new dimension to American entrepreneurship.

Since 2016, about 10 billion has been raised using ICOs, a figure that has drawn the attention of financial regulators in the world including the SEC – which has since warned American investors of pump-and-dump schemes in ICOs.

In an ICO, coins or tokens are put up for sale as a form of crowdfunding. Rather than an investor gaining voting rights or dividends as is the case with shares in a company, utility tokens promise accessibility to a platform, service or network. However, they are usually backed by an abstract idea or nothing at all.

Indeed, in the last few years, ICOs has led to the birth of some ‘funny’ cryptos like Dogecoin, a Shiba Inu dog meme that was turned to a cryptocurrency and has a passionate following on sites such as Reddit. Similarly, Whoppercoin, Pandacoin, Trumpcoin and PutinCoin.

As with ICOs, in a STO, one can purchase coins or tokens. However, unlike in various ICOs, security tokens must be supported or backed by something tangible like assets, profits or revenue of a firm. They are almost similar to company shares; the only difference is that they are programmable to do certain tasks, like conducting proxy voting, since they are built on blockchain technology.

Binance founder Changpeng Zhao believes that the invention of STOs is a compromise with the existing framework of how securities work, therefore they could be the new ICOs in the years to come. This also means that investors are sealed from the pump-and-dump schemes that are evident with ICOs.

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