STOs: A new form of financing for companies and projects

Introduction

The world of financing is constantly evolving. An important milestone in this process has been the emergence of STOs (Security Token Offerings).

This innovative financial tool allows companies and projects to raise capital by issuing digital tokens that represent assets or rights to a project.

Below is a full description of this innovative form of financing, together with the legal aspects you should consider before embarking on an STO financing procedure.

What are STOs?

STOs (Security Token Offerings) are public offerings of digitised securities that are issued on a blockchain.

A blockchain is a distributed, decentralised and immutable digital record of transactions; it is a shared database that functions as a public ledger, in which all transactions are recorded in a secure and transparent manner.

STOs represent assets or rights to a project, such as shares in a company, property rights to real estate or even access to specific services or products.

STOs have burst onto the financial scene as an innovative financing tool for companies and projects. Unlike ICOs (Initial Coin Offerings), which were based on cryptocurrencies with no intrinsic value, STOs are backed by assets or rights, which gives them greater security and stability.

How do STOs work?

Companies or projects that want to realise an STO create digital tokens on a blockchain and then offer them for sale to interested investors. These investors can purchase the tokens using cryptocurrencies such as Bitcoin or Ethereum.

In an STO, a company or project issues digital tokens that represent assets or rights to the company. These tokens can be of various types: (i) equity tokens, which give investors rights over the company, such as the right to vote or to receive dividends; (ii) debt tokens, which represent a loan to the company, with a specified interest rate and maturity; and (iii) utility tokens, which give access to specific goods or services offered by the company.

The issuance of tokens is done through a blockchain platform, which guarantees the security and transparency of transactions. Investors can purchase these tokens using cryptocurrencies or fiat currency.

Once the offering is completed, the tokens can be traded on decentralised exchanges, providing investors with liquidity and the ability to earn a return on their investment.

A decentralised exchange, or decentralised exchange house, is a digital platform that allows cryptocurrencies to be exchanged directly between users without the need for intermediaries; they operate on the blockchain, which means that users maintain full control over their private keys and cryptocurrencies at all times.

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Advantages of STOs for companies

STOs facilitate access to a wider range of potential investors; they allow companies to raise capital from investors around the world, without the traditional constraints of private financing rounds or IPOs.

On the other hand, they are characterised by greater efficiency and speed. STOs can be conducted faster and more efficiently than traditional financing rounds, thanks to the use of blockchain technology.

Another advantage of STOs is that they can significantly reduce the costs associated with raising capital by eliminating the need for traditional intermediaries.

STOs allow companies to structure the token offering in a more flexible way, tailoring it to their specific needs.

Finally, they facilitate greater transparency and traceability of transactions, as well as the possibility of creating new business models.

Advantages of STOs for investors

For investors, STOs facilitate access to new investment opportunities by giving them access to a wide range of investment opportunities that were previously unavailable.

They also provide greater liquidity and ease of trading. Digital tokens issued in STOs can be easily traded on cryptocurrency exchanges, which gives them greater liquidity than traditional assets.

On the other hand, they provide greater transparency in project information. Blockchain technology guarantees the transparency of STOs, as all transactions are recorded in a public and immutable ledger.

Finally, it highlights the high appreciation potential of STO tokens, especially in the case of companies or projects with high growth potential.

Conclusion

STOs are subject to a number of legal regulations, which vary depending on the jurisdiction in which the offering is made. The legal framework surrounding STOs is complex and varies from country to country. It is essential that companies and investors consult with blockchain lawyers to ensure that they comply with all applicable laws and regulations.

STOs represent a new era in the financing of companies and projects, offering endless possibilities for the development of new business models and the democratisation of access to capital.

At ILP Abogados we have a team of financial law and blockchain experts who can advise you on the legal aspects of STOs and every step of the process, from initial planning to token issuance and subsequent trading on decentralised exchanges.

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