EMURGO as the official commercial arm of Cardano, has steadily been gaining a strategic foothold for the upcoming era of Security Tokens & Security Token Offerings (STOs), as STOs display tremendous synergy and align with the value proposition of Cardano (ADA) - a scalable, sustainable, and interoperable third-generation blockchain with a research-first driven approach.
Thus, EMURGO has consistently been in the public view speaking on the future of STOs at numerous leading blockchain conferences including Japan Blockchain Conference, DC Blockchain Summit, and Taipei DLT 101, among other conferences, to raise awareness about the utility potential of STOs on Cardano, and EMURGO’s end-to-end offering of professional advisory services to help enterprises explore offering security tokens on Cardano in the near future.
Furthermore, EMURGO is directly engaging with government policymakers and staying up to date about the latest developments in the blockchain & security token space by joining the U.S. Chamber of Digital Commerce as an Executive Committee member & a founding member of the Blockchain For Europe. Both of these recent developments are intended to share Cardano & blockchain-related information resources with blockchain projects, enterprises, and lawmakers, to gradually shape pro-blockchain initiatives.
In addition, the team at EMURGO has been working hard to create several helpful articles to inform the public about STOs, blockchain and tokenization, and their potential use case values. In this piece, we will summarize all you need to know about the complete basics regarding security tokens and STOs in one simple format.
What is a Security Token? What is a Security Token Offering (STO)?
A security is simply an investment contract. In the United States, a test called the Howey Test sets out what exactly is an investment contract. An investment contract is when:
- There’s an investment of money.
- There’s an expectation of profit.
- The investment of money in a common enterprise.
- Any profits created rely on the efforts of a 3rd party.
Real-world assets can be represented on the blockchain as digital tokens and then sold as these investment contracts or securities. Real estate, intellectual property, stocks, and many other assets can all be represented through digital tokens on a blockchain. This allows investors the chance to profit from the entrepreneurship and hard work of others.
Thus, security tokens, are classified as financial products, meaning that they are regulated according to similar rules as securities (many countries use systems similar to the Howey Test for classification). Backed by tangible assets, they represent a share in profit, dividends, interest, or some other expected financial gain. They are regulated by the regulatory bodies that govern financial securities, and require compliance with financial securities law, approval, and/or licenses to be sold.
A Security Token Offering or STO is simply an offering to investors of these digital security tokens. The offering can be public and/or private and represent the digital tokenization of some tangible asset on a blockchain to be offered to a wider group of investors.
Security Tokens vs. Utility Tokens: What Is The Difference?
In simple terms, a utility token is a blockchain-based asset people buy with the intention to use for something in the future. As a simple example, a company developing an online game could issue utility tokens to fund the development of the game. Once the game’s development has finished, the token owners could then use the tokens for in-game purchases. The game developers gain access to capital to fund their project, and gamers access in-game tokens for future use. Utility tokens are used for services on a blockchain-based platform or application.