Security Token FAQ
1. What is a Security Token Offering (STO)?
STO (Security Token Offering) is a process of issuing and subsequent sale of digital tokens that have one or more characteristics of securities (shareholder right, right to get dividends, right to manage, etc.). These digital tokens are based on blockchain technology, which allows the increase of security and reliability of the whole process. Thus, these tokens allow you to transfer the value of various objects into digital space. Such objects can be companies, real estate, investment funds, art objects, and much more.
2. What are Security Tokens?
Security Tokens are a digital cryptographic counterpart of traditional securities. Securities are a financial instrument that allows investors to acquire certain rights in various companies. Security tokens have the same properties; the only difference is that they were created using blockchain technology. With the help of security tokens, not only rights in companies can be transferred, but also rights to other types of assets such as real estate, art objects, and much more.
3. What are the types of assets?
Currently, the most frequently tokenized asset is real estate. However, this is not the only asset that can be tokenized (transferred to blockchain). Shares in business is also worth highlighting as the second most promising asset. In addition to traditional companies, it is necessary to allocate investment funds in a separate niche, which, through tokenization, can attract additional funds for investments. Separately, it is worth noting various precious metals and other materials: gold, platinum, jewelry, etc. Without a doubt, any real item of possession can also be the object of investment with the help of blockchains.
4. Who can invest in STO?
In theory, anyone can invest in Security Token Offering. This is an important development from usual securities, which have many restrictions. However, in view of the imperfection of the legislation at the moment it is necessary to consider the conditions of investment separately for each STO. In fact, investing in STO is not as simple as investing in ICO. Depending on the country, legislation, type of securities and other factors, there may be various requirements and restrictions. In most cases investors have to pass KYC (identity verification). Among them are restrictions on the minimum and maximum amount of investment from one investor, affiliation (or non-affiliation) of an investor to a particular country, accreditation of a professional investor, annual income, and many other limits.
5. How to invest in STO?
Investing in STO is much easier than buying traditional stocks. After selecting projects that interest you, go to the official STO website (make sure you are on the correct website and take all the information from there). As a rule, detailed instructions for buying tokens are available on the project website. Read them carefully and follow step by step.
In general, the process consists of two main stages. The first is the KYC / AML procedures: identification of the person and, in some cases, the status as an investor. The second is the purchase of tokens in exchange for fiat money or cryptocurrency. To make a purchase, you will need a cryptocurrency wallet in the blockchain network. The project uses the blockchain network to issue its tokens; currently, the main ones are Ethereum, NEO, and EOS.
6. What does an STO investor get?
The list of rights that an STO investor receives is completely analogous to the rights that buyers of similar traditional financial assets receive. This may be the right of ownership, the right to receive part of the profits, dividends, the redemption right, the right to vote when making decisions about the asset. We have compiled a general list of possible investor rights. However, the specific list of token holder rights depends on STO and may differ - therefore, the information needs to be checked before investing.
7. How are STOs legally regulated?
The legal status of STO is not yet fully defined, since the entire cryptocurrency sphere itself originated only recently and does not have proper regulation. At the same time, many countries are already considering adopting some laws aimed at regulating this sphere in order to protect their citizens. In particular, STO appeared as a legal evolution from ICO, the main disadvantage of which was investor insecurity. In general, we can say that the legislation in the field of STO is similar to that for IPO and stock trading. The most perfect legislation in the world in this field is in the USA. That is why many STO projects seek to legalize their placement of tokens in accordance with the requirements of the SEC (The United States Securities and Exchange Commission).
8. What is KYC / AML / Whitelist?
KYC (Know Your Customer). This procedure is taken from the banking sector. Large companies have an honest policy and to reduce complaints from the regulators, they resorted to this procedure. The KYC process itself is as follows: you transfer the data of your identity card to the company, as well as a scan of your identity card and a selfie with this certificate. The goal is to prove to the company that you are you.
AML (Anti-Money Laundering). In this procedure, you must specify and confirm the source of funds for which you plan to participate in the STO. This procedure ensures investment transparency and compliance with legal requirements.
After the company announced its readiness to conduct STO, it notifies potential investors of the need for an advance appointment. This procedure is called Whitelist. Conditions for entering this list depend on STO.
9. What is the STO issuance platform?
The process of carrying out STO is very multifaceted and often requires special knowledge, especially in the field of blockchains, which may be absent from a company wishing to conduct STO. To do this, they can resort to the services of third-party companies - platforms - that undertake in part or in full the organization of the STO. As a rule, only one such company is involved in the organization, although cooperation with several is also possible. Some platforms may have their own token standard, which is designed specifically for issuing Security Tokens. Due to the need to comply with the legislation, the platforms interact with government agencies in various countries.
10. What does the STO profile percentage mean?
These percentages show the completeness of the project profile. The more data about the project, the higher the percentage.
Disclaimer: This indicator is not a rating and does not mean recommendations for investing. STOscope does not encourage investing in any published STOs. Make sure to do your own thorough research before putting money into Security Token Offerings.