Why use STO to raise funds?

Raticanta Mandrencar

I became intrigued with block chain during my stay at Lisbon with Nikhil who is working with several projects related to blockchain technology. He is involved in preparing business plans, financial analysis or developing some Pitch Decks for his clients. Most of them are innovative concepts and some are in connection with either crypto currencies or some related to block chain technology.

I got myself involved in this technology and what I see is, it is a game-changing, disruptive and innovative technology that holds the capability of completely transforming each and every field that you can utilise it for including banking, real estate, supply chain management, energy market, utilities, healthcare, and insurance. The latest being, even in the fishing industry!

I started with getting myself familiarized with the cryptocurrencies and opened up an account with Binance.com. Binance has their BNB coin. I Invested in some coins and tried my hand on spot trading as well. But soon realised that the field is very speculative unlike stocks. It is the field for a versatile trader and not for a novice. But you can buy, hold, stake, and sell the number of coins on this exchange. There are several options to earn money on Binance.com exchange.

I was then introduced by Nikhil, to the Real Estate tokens and that’s where I got more absorbed with the block chain technology, coins, tokens, smart contracts et al. All these are the prominent features in the latest wave of Alternative Investment.

I am passionate about the block chain uses into various sectors and in particular the real estate landscape, where I have experienced the implementation and the

faultless, smooth operations of RealT.co. For the first time, investors around the globe can buy into the US real estate market through fully-compliant, fractional, tokenized ownership powered by blockchain. It can help to build and participate in a new economic system supported by the nascent De-Fi technologies.

Real Estate sector is undergoing tremendous change with the Block chain technology. More entrepreneurs are coming forward adopting De-Fi and smart contracts in their real estate dealing such as EstateGuru.

Block chain for Security Tokens.

Taking advantage of the blockchain technology, adventurous entrepreneurs have raised the funds adopting the routes of issuance of tokens. And nowadays, it is common to hear about digitizing assets and issuing tokens representing Real Estate properties such as multi-family units, resorts, office buildings and commercial spaces. Or simply even tokenization of clubs or players contracts or even a piece of an Art.

So, what is Security Token Offering?

STO is Similar concept to that of Initial Public Offering (IPO) in the securities, where a company issues shares and they are distributed among shareholders. Each unit represents an equal share of the company. In a Security Token Offering, the security token represents a contract into an underlying investment asset. This asset could be anything such as real estate, piece of art, gold etc. Very much in line with a share issuance in an IPO.

These security tokens issued can give you access to the benefits that can be obtained from exploiting the underlying asset.

In case of securities, the ownership information of the investment product is recorded on the certificate that is issued to the equity holder, but with a security token, the information is stored into the blockchain and instead of a certificate a token is issued to the equity holder.

Similar to securities, STO’s are intended to represent a promise to future benefits such as dividends or cash flow. Therefore, the security tokens become similar to traditional financial assets. At the same time it is important to note that STOs are backed by an underlying asset, making them a stable coin, versus other crypto currencies which are solely based on how the market values them.

There are three types of security tokens: equity tokens, debt tokens, and asset-backed tokens. The main difference between the three is what the tokens represent.

Equity tokens are similar to traditional shares.They represent the shares issued by a company — but they are recorded on the blockchain. Owners of equity tokens are entitled to a share of the company’s profits and voting rights.

Debt tokens are debt instruments that include real estate mortgages and corporate bonds. Debt tokens represent capital raised through debt, and they can be compared to a loan to the issuer. Owners of debt tokens are generally entitled to the repayment of principal and periodic interest.

Asset-backed tokens represent the ownership of a specific asset such as real estate or commodities, including oil, gold or crops.

For all these tokens, the blockchain technology is very important because it helps to simplify transactions, reduces fraud and makes it easier to track and monitor asset ownership.

Advantages of STO.

These tokens are programmable assets and can be bundled with extra utilities, such as the token owners can be granted the access to exclusive content or even dedicated merchandise. They can stake their tokens for a certain period in exchange of interest earnings. Tokens also allow for fair and verifiable votings. With verified identities, votes can either be tallied on a per person or per token basis similar to securities. The voting results are publicly verifiable. Moreover, the token-based voting can increase the confidence of the investors as the results reflect the opinion of the community.

Security tokens show the ownership information on the blockchain, which protects the tokens against fraud and misuse and makes the STOs faster, more accessible and less expensive.

• The Security Token Offerings are becoming more popular with companies and investors because of their salient features. Similar to an IPO, the entrepreneurs that want to raise money through an STO have to comply with regulations and disclose all the important information about their business by publishing a prospectus or a private placement memorandum. This increases transparency and accountability and reduces risks.
• Then, there are Smart contracts and blockchain technology. It ensures that the process is transparent, secure, efficient and fast.
• Security tokens are backed by real-life assets, which makes it easier to assess their valuation.
• Third parties such as lawyers, brokers and banks are almost left out. This reduces costs, makes the processes more efficient and minimises the sources of error.
• Security tokens offer fractional ownership. Investors can hold even one token in the asset. This opens up the market to the smaller investors and brings additional liquidity as they can be traded 24/7 and with mobile apps, trading gets simpler and more convenient.

To conclude, the investors should remember that STOs are essentially a different medium representing the same traditional financial instruments like shares of the company and should always research the entrepreneurial ventures, their projects before investing their hard money into it. The basic risks are always there — if the company fails, the investment also fails.

Raticanta Mandrencar.