What is an STO?

Recently, I came across an intriguing statement: "An STO can represent equity in a company, profit-sharing, voting rights, or even ownership rights over real assets, such as real estate."

While this statement is partially accurate, it's crucial to break down and clarify what a Security Token Offering (STO) truly entails—and what it doesn’t.

What is an STO?

An STO is a fundraising mechanism where a company or startup issues security tokens. These tokens can represent a range of traditional assets, such as stocks, bonds, investment funds, or other securities. The key difference between an STO and other forms of digital financing, such as ICOs (Initial Coin Offerings), lies in regulatory compliance. Tokens issued in an STO are classified as securities and are subject to specific regulations, providing a stronger framework for investor protection. (See book)

What an STO Does Not Guarantee

It’s common to assume that an STO backed by a real asset, such as real estate, automatically grants ownership rights over that asset. However, this isn’t necessarily the case. While an STO can be backed by a tangible asset, such as property, what investors are actually offered are financial rights tied to the asset’s performance, such as profit-sharing or dividends, depending on the capital contributed.

In other words, purchasing a token in an STO backed by real estate does not make you a partial owner of that property, nor does it guarantee any direct usufruct of it. Instead, you gain the potential to benefit financially from its management, provided that the issuing company properly handles the underlying assets.

The Role of Blockchain Technology

Blockchain technology plays a crucial role in STOs. Its automation capabilities are a key strength, allowing investors to efficiently and securely enter and exit their positions. The traceability, transparency, and immutability of blockchain transactions ensure that all activities related to the tokens are publicly recorded and cannot be altered.

However, it is essential that the process is fully automated. If investor capital enters through traditional bank transfers and profits are distributed manually from wallet to wallet, the result is a hybrid process. While blockchain is utilized, it doesn’t fully capitalize on the benefits an STO should offer. This not only reduces efficiency but also introduces uncertainty regarding the legal security of the funds. (See book)

Benefits and Considerations

STOs offer several advantages, including increased transparency, enhanced liquidity, reduced intermediaries, and the ability to fractionalize assets—attracting a broader range of investors. However, it’s also important to note that STOs are subject to specific regulations in each jurisdiction. Compliance with these regulations is critical to avoid legal issues and ensure investor protection.

Final Thoughts

STOs are a powerful fundraising tool, bridging the gap between traditional assets and digital innovation. However, it’s vital to understand what you are actually acquiring when investing in an STO. It doesn’t guarantee physical ownership of underlying assets but rather provides a share in the profits they generate. Blockchain technology adds an extra layer of security and efficiency, but only if implemented comprehensively and correctly.

In summary, STOs represent an exciting evolution in the financial world, but like any investment, they require a clear understanding and careful evaluation of risks and benefits. (See book)

Thank you for reading! 😊 If you’d like to learn more, I invite you to check out the book. 📚✨

This book is part of a trilogy:

1) Blockchain, Tokenomics & Real Estate Vol. I introduces advanced concepts on blockchain and tokenized real estate.

Index, Summary, and Chapters

AMAZON

DIGITAL

2) RWA – Real World Asset: Guide to Tokenize an Asset is a simplified summary of Volume I, presenting fundamental concepts and the innovative Token Genesis framework.

Index, Summary and Chapters

AMAZON

DIGITAL

3) Coming February 2025: The Theory of Token Genesis: The Revolution of Wall Street and the Stock Market, a deeper dive into financial engineering, digital and traditional markets, and blockchain applications.

These books are shaping academic and professional discourse, already integrated into curricula across LATAM and Spain.

Explore them and join this global conversation on how blockchain is transforming the future!