Differences between ICO and STO

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For crypto newcomers, ICO vs STO is now the most popular comparison on Google. That’s why we decided to explain the difference and highlight the benefits and risks of ICOs and STOs. First understanding the difference between ICOs and STOs will help to better appreciate both offerings, including their benefits and risks, and which type gives investors and companies more opportunities.

ICO is a way to raise funds based on the crowdfunding model, this method is not regulated by laws or banks.

In fact, the ICO is another implementation of the crowdfunding model, when participants finance the development of a company now in order to get some benefits from it in the future.

During an ICO, the buyers of the cryptocurrency do not receive a stake in the company and cannot influence internal management decisions in any way.

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However, as time is showing, ICOs aren’t always secure either. There have been a ton of pump-and-dump schemes — basically, after having paid for tokens, investors couldn’t cash out on them.

ICOs are known to be the Wild West of investments — there are no guarantees for investors and a huge risk of becoming a pump-and-dump victim.

To protect the rights of their investments, companies started looking for new forms of crowdfunding.

Security token represents an investment contract into an underlying investment asset.

Instead of utility tokens, STOs offer more use cases — they can be cashed out as equity points, property trust funds, bonds, and stock. Security tokens are more universal than utility tokens.

STO = ICO + Legal regulation

Smaller investor pool — that’s one of the STO’s fewer downsides for companies.

Thus, it’s hard to determine which form of tokenization is better overall. Small startups and investors are more likely to go with an ICO due to its open markets and fewer constraints. However, if your business generates over $10 million per year and aims to provide stakeholders with liquidity and issue transferable assets, STO is the way to go.

Read the full article on crypton.studio.

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