STOs and ICOs are two fundraising mechanisms with functional similarities and differences. Due to an overwhelming amount of recent questions regarding the topic at hand, today we’re going to talk about the difference between STOs and ICOs.
OUR SHORT ANSWER:
STOs: Security Token Offerings
When you invest in a Security Token, you’re investing in something that has something tangible behind it already because they are actual financial securities backed by the assets, profits, and revenue of a company. You’re not taking as much of a risk and essentially investing into‘GoFundMe’ like you would be with an ICO.
ICOs: Initial Coin Offerings
Most of the Cryptocurrencies that you know started out as an ICO in which people could invest money in hopes that the value would go up. An ICO is a security which means it needs to fall under one of the exemptions to the SEC (or otherwise be registered) such as Regulation D, Regulation A, Regulation CF and Regulation S which each have their own set of requirements according to the Jobs Act. If you want to launch an ICO, it’s not that you can’t do it, it’s just that you have to do it right. But just think of ICOs as the ‘Kickstarter’ of coins. There is not enough room in the market for ALL ICOs to do well!
Now let’s talk about Utility Tokens. The major differences between Security Tokens and Utility Tokens are:
Security Token:
Ownership of asset
Investors
Regulated Offerings
With Security Tokens, you’re buying a share of the project.
Utility Token:
Access to protocol
Purchasers
Unregulated Crowdsales
With Utility Tokens, you’re buying a token of the platform with the promise that once the platform is functioning you will have access to the platform through your token.
NOTE:The SEC does not recognize the term “Utility Token.” In fact, Chairman of the SEC, Jay Clayton, is on record saying that he has never seen an offering that he thought was not a Security. Therefore, in order to be on the safe side, all ICOs and STOs should be treated as a security until the law is clear about the defining factors.
Bottom Line:
Because STOs are backed by something tangible, there is much less of a risk of fraud which makes STOs the safer option. In 2018 and 2019 you can expect to see a major rise in STOs!
If you still have questions on this topic, reaching out to a lawyer for advice is recommended. At Benemerito Attorneys at Law, we offer free consultations and would love to help guide you toward the right decision for your business.
Let’s talk >>> 212-785-1528
This blog is for informative purposes only. This information does not constitute legal advice. You should consult with a licensed attorney that can advise you according to your particular circumstances.
