ICO vs STO: Whats The Difference?

There is also more regulatory oversight of STOs, which adds another layer of protection for investors. As a result, while an STO may not offer the same potential for high returns as an ICO, it is often seen as a safer investment. For those looking to minimize risk while still potentially earning a return on their investment, an STO may be the better option. As the fundraising space for blockchain projects continues to evolve it’s almost certain we’ll get some new acronym for a new type of campaign.

ico vs sto

In order to get started with STO development, you’ll need a business developer to work on a business plan for tokenization as well as someone responsible for legal and financial documentation. In order to launch an STO, you’ll most likely need a founding team. The companies developing trackers collect information about ICOs so that investors don’t have to dig for it themselves. Small rewards to the most active users will help you keep them interested and have yourself promoted.

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If a company does an IPO it does not mean that it is a new company, there are many companies that are very successful and old but are not offered to the public such as Levi’s & Co. ICO is an initial coin offering which describes one of the https://globalcloudteam.com/ reliable ways to raise money for new crypto-currencies. The initial coin offering is fundamentally a one or two weeks event where everyone has bestowed the chance to sell crypto tokens in exchange for, say, Bitcoin, ETH, XRP and much more.

ico vs sto

Most ICOs actually position their offerings as utility tokens to circumvent regulations. Most founders and projects argue that they distribute users tokens to access their decentralized applications or native platforms. The main logic here is that the purpose of their coin is usage and not speculation.

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And compared to STO, to issue its own money using the ICO model takes less effort. NEO has several advantages that make it a good choice for anyone looking to launch a fundraiser. Unlike Ethereum, NEO is capable of up to 10,000 transactions per second. In addition, the platform uses the more familiar programming languages of Java and C#.

Once the ICO is launched and has a defined timeline, the investors can buy the tokens. The teams have the liberty to use the funds in the way they deem most beneficial. Later, the tokens are distributed in a simple automated way via smart contracts. According ico vs sto to CoinDesk, there’s been a huge financial influx into ICO investments. However, due to hostility and the lack of regulations of the ICO markets, a fair share of these projects ended up being abandoned and investors never got a chance to cash tokens out.

Initial Coin Offering (ICO)

From the standpoint of an investor, this can make them safer. These restrictions can protect your investment and provide you peace of mind. As previously stated, practically anybody may launch an ICO, and they are the quickest option to get your token on the market. ICOs may go live in as little as 24 hours in some situations.

  • However, as time is showing, ICOs aren’t always secure either.
  • Countries all over the world have begun to regulate the environment and we will see more and more STOs will pop up in the Blockchain industry landscape.
  • Polymath is positioned as the second Ethereum-based investor aimed at security token issuance.
  • STO are generally seen as less risky investments than ICO and IPO, as they are protected by securities laws.

An STO, or security token offering, is a type of crowdfunding initiative in which a company or individual offers investors digital tokens that are backed by real-world assets. These assets can be anything from equity to debt, and they are typically regulated by government agencies. ICOs are more common in the tech industry, while STOs are more prevalent in the financial industry. A scalable business model is thus required before the announcement and launch of the idea. This is what makes the projects more professional and trustworthy. Once regulators are on board and the required asset tokenization is complete, it takes longer to start an STO.

ICO problems that STO model should solve

While there are a number of successful ICOs, many of these unregulated token issuances turn out to be a scam. As pointed out earlier, most ICO token issuers sell out digital tokens as utility assets for accessing a part of the startup’s business. STO requires a company to do a lot of upfront compliance work. While everyone can launch and participate in an ICO , only entirely regulatory compliant companies and accredited or at least known investors can sell and purchase security tokens. While an ICO may offer the potential for higher rewards, it is important to remember that it is also a higher-risk investment. With an STO, the tokens are backed by real assets, which means there is less chance of the value of the investment plummeting overnight.

Participating in an STO round may imply taking ownership of the company’s assets or other notable securities, for which a profit or dividend is paid out to the investors. The scope of the ICO and STO can be redefined by the issuing firm, albeit for the latter, all propositions must be backed by law. ICO is more or less a crypto word because most of the crypto-currencies are done through ICO.

However, if you are looking for a more stable and regulated fundraising method, an STO may be the better option. This has the main advantage of providing extra safety for the investors. However, it does drastically increase the legal cost in order to comply with financial regulations. The market has not dried up and investors’ money is still available for the right projects. Countries all over the world have begun to regulate the environment and we will see more and more STOs will pop up in the Blockchain industry landscape.

ico vs sto

ICOs – Initial Coin Offerings – were the first crowdfunding option to surface in the blockchain ecosystem. This method of fundraising enabled anyone, from anywhere, to finance the development of a company or project. ICOs have also been baptized the cryptocurrency version of Initial Public Offering . In exchange for their investment, the investor will receive a number of utility tokens, or, user tokens in other words. These tokens represent future access to a company’s product or service. The initial coin offering is primarily a one or two weeks event where everyone is granted the opportunity to sell crypto tokens in exchange for, say, Bitcoin, ETH, XRP and much more.

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What is an ICO? What is an STO?

You can offer them some tokens, or the services you are going to provide for free. Launch a pre-ICO, a presale of tokens you are about to issue before the actual ICO takes place. The tokens at a presale are usually sold cheaper than at the ICO itself and in lesser amounts. However, be careful, people tend to ditch the tokens bought at the pre-ICO at exchange markets as soon as possible. If possible, find people who have already worked with blockchain and ICOs.

What is the difference between Initial Coin Offerings and security token offerings?

STO offers are supported by assets and are fully in line with the legal order. On the other hand, ICO are tool tokens that offer access to a native platform and decentralized applications. In practice, this means that the entry barrier for ICO is much lower.

Despite these challenges, STOs can be a powerful tool for companies looking to raise capital, and with careful planning and compliance, they can be a success. Generally speaking, the SEC is more open to the security tokens than to non-security tokens.Greater protection shields investors from more volatile tokens. However, the main problem of ICOs lies in the divergence of interests between the token holders and the token users.

The caveat is that an STO can raise a maximum of USD 1.07 million in a given year under this regulation. Ethereum, launched in 2015, was a game-changer for token issuances. Its blockchain is coded in Solidity, a Turing-complete programming language. It allows for programming of complex “smart contracts”, which can perform transactions on the blockchain based on predetermined logic (like a series of “if-this-then-that” conditions).

As part of the capital they have invested, investors enjoy high profitability, along with the benefits of the token, while also helping to achieve the project objective. Let us remember that if the money collected in the ICO is less than the minimum amount required by the ICO criteria, then all money can be returned to the project investors. If the funding requirements are met within a certain period of time, the money collected is spent on the project’s objectives. It is worth noting that the investment on the basis of tokens or coins provides anonymous participation in the project. The process of launching an ICO fundraising campaign is easy to start, you just announce it and carry out a digital campaign. There’s no entry barrier for neither sellers or buyers, it’s open to crowd investing.


The first ICOs were held by Omni Layer in 2013 and Ethereum in 2014, both ended successfully, and became a good example to follow. 2017 and 2018 were the “golden time” for blockchain startups that held ICOs. From there a company will have to decide who they want to target as investors.

Marcel is a Business Economist and founder of iMi Blockchain. On our blog, he writes about distributed ledger technology, smart contracts, cryptocurrencies, industry news, and future trends. In this article today, we would give an exposition of the STO vs ICO debate. The core aim is to understand the growing mode of raising funds for a new class of venture capital firms, that is, those with an interest in cryptographically designed tokens. And to get an extra money, some people work extra hours, put their money in the bank, or they invest the money.

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