What are ICO and STO?
What are ICOs?
The ICO stands for Initial Coin Offering, which translates into Spanish as Initial Coin Offering. They were the first to come onto the market and have been presented as a very useful mechanism for the sector. Important cryptocurrencies such as Ethereum , IOTA and NEO started as an ICO and thanks to this they managed to obtain the necessary monetary funds to develop the projects we know today.
Despite the enormous efforts that financial authorities around the world have made to regulate ICO Developement , this market is still very little regulated by governments. This implies that its developers must not follow any type of regulatory framework or follow a protocol established within legislation to go out and sell the tokens . The only thing they present to the investor is a White Paper in which they detail important information about the project such as financial aspects, publicity, technological development, the team behind the project and the roadmap that it will follow.
What do investors acquire from an ICO? Unlike IPOs (Initial Public Offering, Initial Public Offering in Spanish) where investors acquire shares of a traditional company, in ICOs investors are making an acquisition of a token early. Said token will have a specific utility within a specific platform that is developed by the representatives of the ICO in question.
How can an investor make money within an ICO? To evade the legal regulations regarding the investment market, the developers of the project strongly defend that the acquisition of tokens in this phase is not really an investment, however, the reality is different.
The investor makes the acquisition of the token with the expectation of earning money and that is why he hopes that the platform where the digital currency will be useful will develop correctly and have massive adoption. The true hope of the investor goes beyond using the token within a system, the investor wants the coin to have a demand greater than its limited supply and that this positively implies within the price of the asset it is acquiring.
Making a winning investment in the ICO market is very complicated. The market is really very voracious and the lack of regulation has caused many investors to lose their money. Unfinished projects that were presented as utopias in the White Papers abound in the market and this has caused many investors to view the sector with great fear and suspicion.
In addition, not many investors (especially traditional ones) understand very well the fact of investing in an asset that does not yield a fixed profit, as is the case with the shares of a company that is acquired through the different stock exchanges that exist throughout the world. throughout the world.
Do you have rights over the company if you invest in an ICO? Not directly about the company behind the ICO, since the company is a different legal figure that is already constituted before the investments go on the market. However, it is possible to see cases in which the holders of the tokens have some leadership capacity within the project if it is constituted as a DAO .
What is DAO?
The DAO (Decentralized Autonomous Organization, Decentralized Autonomous Organization in Spanish) are a form of unique structure within the cryptocurrency market. This structure allows token holders to make decisions about the future of the company. Many DAOs that are formed after an ICO allow the users of the acquired tokens to determine in which aspects the money that has been collected during the ICO itself will be spent. Such determinations are made through proposal and voting systems open to token holders.
What is an STO?
Being a wild market with little regulation, large investors were not (and still are not) very convinced about putting their money into ICOs.
In response to the situation, many developers presented the idea of making STOs (Security Token Offerings) and the proposal was actually to bring together the best of ICOs and IPOs in a single presentation.
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On the IPO side, STOs would offer token holders dividends from the profits made by the company behind the STO during its years in operation.
On the ICO side, the STOs wanted to demonstrate the usefulness that the Blockchain can have to offer a more transparent and efficient system than the current stock system that they use within the markets.
Obviously, by offering this, STOs are bound by a series of legal regulations that do not apply to ICOs. Public accounting records, control by financial authorities and many other elements typical of listed companies were now being applied to projects related to cryptocurrencies and the Blockchain.
Do all STOs give rights over the direction of the company? This is one of the points that generates the most confusion within the STO market since by offering a dividend to the holders, it is believed that the possession
The same thing happens in STO Development as with ICOs, the power or not that token holders may have will depend exclusively on whether or not a DAO is formed on the project. In the event that there is a DAO, then the holders will have the possibility to decide on the different aspects of the project.
But, in the event that we are not given indications in this regard, we will have to understand that there will be no possibility of deciding on the future of the company.
