Many people want to run a successful business of their own instead of settling for a regular nine-to-five job. Especially Millennial are swayed by the idea of setting their own work hours and following their passion. But, there is one big obstacle standing in their way called MONEY.

The sad truth is that many unique business models perish for the want of funding. Although many conventional funding sources are available, they often have a higher entry barrier and stringent regulations, making them less attractive.

In recent times, a new trend called Security Token Offering (STO) is emerging in the digital currency space. It is being perceived as a viable investment alternative to traditional investments such as Venture Capital (VC).

Let’s dig a little deeper into what a Security Token Offering is and why business owners will find it more attractive.

A. What Is a Security Token Offering (STO)?

A Security Token Offering consists of security tokens backed by actual assets. By law, a security is an economic instrument that needs to represent a tangible asset such as real estate, shares, stocks or bonds. An STO offers the same functionality of an Initial Coin Offering (ICO), but with better security and legal compliance.

Instead of using a piece of paper to complete the transactions, STO uses blockchain transactions to confirm ownership. STO investors can enjoy the same financial rights and benefits offered by any traditional security including equity, dividends, revenue and profit shares, and even voting rights.

B. The Transition from ICO to STO

The gradual transition from ICO to STO has been the driving force behind the quick rise of the Security Token Offering. An ICO offers or sells a utility token to raise capital. However, unlike a security token, it is not backed by a tangible asset. In other words, it can become worthless anytime after the ICO is over.

According to a recent study by Grey Spark Partners, nearly half of ICOs (890 token sales) failed to raise any funds at all in 2017 and 2018. Although about 40% managed to raise more than $1 million each, many of them have failed to provide a positive return-on-investment as time passed.

Unfortunately, scammers with greed for money exploited this innovative funding alternative leading to plenty of rip-offs, which gave ICO a bad rep. As a result, people are turning away from ICOs.

The Security Token Offering, however, aims to overcome the lack of transparency and security by connecting digital currency to real assets. So, with STOs, the crypto world is moving towards a more reliable fund-raising option.

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