5 Key Differences Between Security Tokens Offerings and Public Offerings

In my previous blog 5 of the Most Common Questions on Security Tokens Answered we touched a little on the differences between STOs and ICOs.

In this post, we’re going to go deeper with the topic. So, here are the top five major distinctions between a security token offering and a public offering.

Variance #1 Security token offerings rely on blockchain-based crypto exchanges

The foremost difference between a traditional public offering and a security token offering is the dynamic use of blockchain-based crypto exchanges for trading STO securities.

In the United States, orthodox public offerings are conducted on any one of the 13 registered stock exchanges in the country. For example stock exchanges for public offerings including the NYSE, NASDAQ, AMEX, OTC Markets, and NSX.

In contrast, for security token offerings, digital tokens are traded on cryptocurrency exchanges. And the most common of these crypto markets are Binance, Coinbase, FTX, Gemini, Poloniex, and Kraken.

Variance #2 Security token offerings are more liquid than public offerings

The ability to buy and sell securities in an efficacious manner is a big difference between the two offerings.

The majority of assets in a public offering are illiquid. It’s not easy to sell them on a whim unlike securities on crypto exchanges.

This high liquidity provided by STOs has been lauded as both an advantage and a disadvantage by insiders.

Variance #3 Cryptocurrency exchanges are open 24/7

A key aspect that is closely linked to high liquidity is the accessibility of STO markets.

These crypto exchanges are open 24/7, unlike conventional exchanges which trade within strict business hours.

Variance #4 Immediate settlement of trades in security token offerings

It is possible to make an immediate trade on a public offering. However, it takes up to 2–3 business days for the trade to be cleared in your name.

This isn’t so for trades made on STOs.

Within a cryptocurrency exchange, so long as you pay the necessary fees associated with clearing the trades, it’s possible for a trade to be executed and settled on the same day.

Variance #5 STOs provide startups with a global investor base

One of the biggest benefits that a security token offering can provide a startup with is access to a global investor base.

Unlike public offerings which typically limit their initial offering to a selected group of investors — usually within the U.S., an STO offers investment-hungry startups a bigger investor source pool.

Furthermore, the requirements to start trading on a cryptocurrency exchange are not as stringent and exhaustive as those for trading on legacy exchanges. This makes it easier for startups to get the funding they need at a faster rate.

For foreign investors, STOs give them a front-row seat and an opportunity to easily invest in emerging U.S.-based companies.

The bottom line

Security token offerings are revolutionizing the way companies raise money from investors. It’s also changing the game especially for venture capitalists who are keen to diversify their portfolios.

By providing high liquidity, immutable security, and faster and potentially more cost-effective ways to trade, STOs have a bright future.

If you would like to learn more about security tokens, do check out my blog:

5 of the Most Common Questions About Security Token Offerings (STO) Answered