A Security Token Offering (STO) occurs when a blockchain token is sold to a buyer as an investment. The token that exists on the blockchain can be used to represent the value of real-world assets, such as works of art, real estate and intellectual property, among others. A token that represents these real-world assets can then be sold as a security. A security is an investment contract, where the buyer gives money to the seller with the expectation of a return on the investment. The return on the investment relies on a third party putting in some form of work, such as restoring a valuable piece of art to its original condition, developing real estate or creating a valuable piece of intellectual property.
The token is seen as an investment under the law, rather than a utility token, the value of which is based on its use rather than return on investment. A real world example of this would be a security based on casks of whiskey. A company may want to raise money to store and maintain casks of whiskey over many years, before they reach maturity and are suitable for selling. While the whiskey is drinkable and certainly could be put to use, ownership of the token is a security, not something that can be exchanged for the whiskey itself.
In Europe, there is currently a promising outlook for securities and STOs. In this post we’ll examine the different elements influencing STOs in Europe these days.