The abbreviation ICO — Initial Coin Offering, the initial placement of coins (tokens). During the ICO, the project team sells digital tokens for cryptocurrencies or fiat money to investors. Later, these coins can be used as a local currency on the project platform or traded on exchanges. Also instead of ICO, the term “crowdsale” is often used.

STO — Security Token Offering involves issuing digital assets in full compliance with the requirements of securities legislation, but does this mean that it is better in all respects than Initial Coin Offering (ICO)? The answer is not as simple as it may seem at first glance.

ICO problems that STO model should solve
The first problem of ICO is that users, acquiring tokens, think that they become full-fledged investors and have the same rights as traditional investors: control over the management of the company, voting rights, profit shares, preferential rights to newly issued shares.

In fact, the acquisition of a cryptographic token gives only the right to use it as a commodity or means of payment.

However, the Securities and Exchange Commission (SEC) published a report last July that some tokens could be classified as securities, so they should be regulated in the same way as traditional securities.

The second problem is that many ICOs are fraudulent and are created only for the purpose of enriching their founders.

That is why there is a solution to this problem — Security Token Offering or STO.

Pros and Cons
Both ICO and STO have pros and cons. STO is similar to ICO in a way that it allows consumers to buy digital coins or tokens as a part of a public offering. However, unlike many ICO’s; STO’s are the sale of tangible securities such as assets, profits or revenue of the start-up. Let’s outline the pros and cons of STO.

Advantages of STO:

STO’s are actually registered with the (SEC) Securities and Exchange Commission.
More secure compared to an ICO as SEC only allows projects that are reasonable and serious about the aim.
Disadvantages of STO:

The big exchanges are not yet supporting the security tokens.
The administrative burden (it does drastically increase the legal cost in order to comply with financial regulations).
Advantages of ICO:

The project can potentially raise funds in a much easier manner since there is no entry barrier.
The marketing is solely digital by using the company website, social media, various messaging apps and other online forums.
Disadvantages of an ICO

Uncertainty of the possibility of the product to be finished and ready as stated in the whitepaper.
The ICO’s are not officially regulated by the officials so the potential investors do not have legal alternative if funds are lost.
Regulations can potentially cause problems.
ICO and STO now
If you now look at the ICO calendars, you can find quite worthy projects that provide comprehensive answers to the questions above. Investors have learned how to distinguish quality and promising projects from garbage and idealistic nonsense. Maybe soon we will see hybrid models — ICO + STO.
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