Since blockchain technology has taken the digital world by storm, there has been a growing demand for companies looking to raise capital by selling their cryptocurrency rather than accepting cryptocurrencies already on the market.
There is a growing trend towards Initial Coin Offerings (ICO) as more and more businesses look to raise capital through token sales. Security tokens are the mode of exchange that allows you to buy bitcoin.
This year alone, ICOs have raised close to the US $4 billion globally. It is expected that by 2025, the world market for cryptocurrencies will be worth US $3 trillion.
The significant increase in money raised through ICOs has resulted in an abundance of new tokens to choose from. There are over 1,300 active cryptocurrencies, and all of them come with their own set of benefits and challenges. Visit here to know about forex software.
One such token that has emerged as a popular choice is a Security Token Offering (STO).
What are Security Tokens?
Security tokens (also referred to as securities tokens) are essentially digital certificates that represent ownership in actual traditional financial instruments.
They are different from both utility tokens and cryptocurrencies in that they are subject to federal securities regulations when they are issued.
So, what does this mean for businesses? How can they use security tokens to their advantage?
What are the Benefits of Security Tokens for Businesses?
Security tokens have several benefits over traditional forms of financing, mainly the fact that it is less expensive to run an ICO campaign because there are no underwriters.
Most STOs require KYC/AML procedures before participating in the sale, which means that you know precisely who your investors are. It protects your company against risks associated with international money laundering. It is the safest form of exchange that allows you to buy bitcoin.
It is estimated that using digital currencies instead of fiat currency will increase business profits by 25 percent and save more than 50 percent of the total transaction costs.
As a result, many companies that had previously turned to private equity and venture capital funding or even debt financing are now considering STO platforms as an alternate source of raising funds.
What are the Disadvantages of Security Tokens?
The only disadvantage associated with security tokens is registration with the securities division in most countries. It can be a very long process that involves filing detailed information about your business, its current operating structure, and team members.
A new form of technology known as a “Regulation Crowdfunding Portal” facilitates the process. It acts as a digital securities exchange platform where companies can offer their token sale for investors to purchase.
In some cases, these portals even offer a secondary market for security tokens that have been issued.
Without going into the details on how Regulation Crowdfunding operates, it is the process of raising funds through digital currencies by following specific guidelines set forth by the United States Securities and Exchange Commission (SEC).
The benefit of utilizing this technology is that companies can go up to the US $1.07 million annually without dealing with expensive underwriters or consultants.
It significantly reduces costs associated with ICOs, which subsequently leads to increased profits overall.