Security Token Offerings (STOs) explained simply

Dec 14, 2020

To better understand what a Security Token Offering is, let’s use an example.

Imagine it’s 2015. Your tech company is not interested in borrowing money from a bank, or has trouble doing so, but the company does need money. You have to raise it through other means. You know that equity crowdfunding and crowdlending platforms would allow your company to connect with a wide audience of potential investors (including other companies). 

However, one big problem for most investors is that, once they transfer the money to your company, they have to wait a long time to cash out. Sometimes up to 8 years or more. Why? Because your company needs time to succeed and there’s no easy way to sell shares in a private company, so all an investor can do is invest and hope that your company will be sold, so that they can then sell their shares to the buyer and cash out. 

Now, in 2020, your tech company would solve that problem for its investors by issuing a Security Token Offering to raise funds. Tokens are digital representations of the shares your company sells in order to raise funds. These tokens are generated using blockchain technology, which gives them two superpowers: 

  • They cannot be replicated, so they can’t be falsified. They can therefore be used safely as a legitimate representation of your company’s shares. 
  • They can be sent to someone else as easy as sending an email.

An STO allows private companies to raise funds and investors to easily resell their investment whenever they see fit, as opposed to whenever the company is able manage a liquidity event (it sells itself to another company or, more rarely, it goes public). We at Token City help companies raise funds through Security Token Offerings issued by our sister company

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Entra en la nueva economía tokenizada

Enter the new tokenized economy

Token City is the ultimate bridge to the tokenized economy (tEconomy), in which tokenized companies (tEnterprises) create their cryptoasset markets (tMarkets), open to global investors (tCitizens).

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