What is a security token?

We cannot talk about security tokens without first talking about what an ICO (initial coin supply) is. It is a way for startups or any company to raise funds from public investors. In an ICO, the investor purchases a digital cryptocurrency token. The main point to note here is that these coins you buy are UTILITY tokens, which you can use in the future to benefit from the company's services. It is not a share of ownership. The ICO model has proven to be extremely powerful and popular in the past two months. In fact, it has even outperformed traditional venture capital funding.

But it nevertheless encounters limits. Here are its two main limitations:

- many ICOs have proven to be a scam. Many took advantage of the boom and played the game with pumping and emptying systems. Many investors who believed in the model lost a lot of their money. Thus, the Enter ICO sector began to enter a shaded area.

- The SEC (Securities and Exchange Commission) and the governments of various countries were not satisfied. Tokens sold by many ICOs have proven to be more of a security token than a utility token. They considered that these tokens are subject to the regulations to which all security must be subject.

To solve the above problems, the new type of token called security tokens takes the main stage. Experts except that it's the next Big Crypto trend.

A security token is a cryptocurrency that inherits the properties of normal securities traded on a stock exchange. A security token is supported by the regulatory framework. It represents the actions of the company. An investor holding a security token from a startup or a company has the same voting rights and access to the company's dividends.

The activity of a company or a startup trying to raise funds from investors, by issuing security tokens is called STO (Security Token Offer). These security tokens can be given in equity - or - they can be backed by the amount of real-world assets your company owns (eg, gold, land, raw materials, etc.). STO can also be launched in bonds that hold a debt worth viz. Collect money from investors and pay off debts with interest, thereby saving your business equity.

In an STO, you distribute a good business plan to the target audience of investors. This business plan (investor manual or user manual) talks in detail about the company, the revenue model, the entire roadmap, the board of directors, the council of advisers, financial projections, etc. to seduce your token buyers.