So you need to raise capital. Once upon a time you might have issued stock certificates — yup, actual pieces of paper representing investor equity in a company. In 1973 came the centralized registry, which replaced paper certificates with uncertificated bookkeeping, allowing for faster, more efficient trading. And now there is the decentralized ledger, also known as blockchain.
First of all, we are not talking about ICOs (initial coin offerings). The Wild West days of cryptocurrency are on the wane as ICOs with their unsavory reputations have evolved into a more sophisticated and regulated vehicle known as the security token offering (STO). Sometimes also referred to as a digital asset offering (DAO) or tokenized asset offering (TAO), security token offerings take all that is good about blockchain and cryptocurrency, and wrap it up in a regulated package that is compliant with securities regulations and laws.
Let’s repeat that: In a security token offering, a company creates blockchain tokens to represent a security, such as equity in the company or an ownership interest in a piece of real estate; investors hold and trade these tokens on a network designed for holding and trading; and it’s compliant with securities regulations and laws.
Why is this a good thing?
“Security token offerings represent one of the best use cases for blockchain technology,” says Lee Schneider, co-founder of Genesis Block and former head of FinTech and broker-dealer practices at two international law firms. “Tokenization of equity is poised to disrupt the world of traditional finance, and what we’re seeing now may very well be the beginning of how capital will be raised in the future.”