MARKNetwork Blockchain: STOs, IPOs and ICOs

Will STO prove to be a better way to raise capital than IPO and ICO?

Short summary of the article:

“Do not get left behind”

»Crypto tokens disrupted the way organizations raised capital for expansion. STOs and ICOs have provided new models to investors and companies. Let us look at how these models are evolving«

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Whenever we are asked how a company raises capital for expansion, the first thing that strikes our mind is an – IPO (Initial Public Offering) or what is commonly known as- “a private company going public”.

History of raising capital

If you believe IPO is the only way, you may be mistaken. The capital requirements of corporate ventures are primarily met by mixing external sources like Debt capital and Equity capital. Debt capital skirts around asking for loans from family, friends or banks in lieu of interest payments. On the other hand, Equity capital is raised by the sale of company shares where the market turmoil and Fed concerns are not a rare occurrence.

Skirting the Debt and Equity capital ways of raising wealth for expansion are the crowdfunding platforms, government grants, and corporate investors. With the advent of cryptocurrency, the capital raising ways were bound to face disruption.

How cryptocurrency disrupted the capital raising scenario?

It all began with the cryptocurrency crowd sale mechanism now known as Initial Coin offering-ICO. Ethereum became the largest ICO back then which raised over $18 million in 2014. ICOs quickly dominated the fundraising platform as these are easy to structure. But what rattled the public belief was the hacking of DAO- Decentralized Autonomous Organization. The project attracted over $ 150 million via crowdfunding but ended up getting hacked. SEC had to issue a warning that DAO is an illegal offering of a security.


Despite the regulatory challenges the ICO market continued to flourish and raised $ 5.3 billion capital in 2017. ICOs did not fall under any regulatory bucket and gave way to scammers. According to The New York Times, SEC issued subpoenas to around 80 companies that raised capitals using the ICO platform.

Will STO bring a dramatic shift in fundraising using crypto token?

Looking beyond the world of ICOs, Security Token Offering is strengthening the stand of cryptocurrency platforms to raise capital by working in a legally compliant framework. The STO market is expected to witness tremendous growth by 2024 when it is predicted to grow up to $10 trillion.

Explaining Security Token Offering

The STO or Security token Offering is a token which stands for a legal investment contract. The legal investment contract stores the ownership details of real-world stocks, funds, company, property or bonds. All this information is stored on the blockchain.

Features of an STO

  1. STOs are always backed by an asset
  2. It is an overlap of ICO and IPO as the right of ownership is shared as a token instead of a document
  3. There is a liberal regulatory framework to be followed to issue an STO

Security Token Offering VS Initial Public Offering

Before we conclude the advantages of STO over IPO’s, it is crucial to know how IPOs operate.

More about IPO

Initial Public Offering or IPO is a public offering by a private company by which it offers a share of the business. The share can be bought by institutional or retail investors and it helps raise the desired capital for growth or expansion.


The IPO system dates back to the 17th century is has full regulatory set up around it to guard investor interests. No company can go public without being listed on the country’s stock exchange which requires a statement of registration with bodies like SEC (Securities and Exchange Commission) in the US.

Challenges in the process:

  1. IPOs remains a viable way to raise capital for giants because the process requires the support of investment banks who assist with regulatory filings
  2. Average fees charged by investments banks to complete the IPO process ranges from 3-7%
  3. The entire IPO process takes 8-9 months

The process is not only time and capital intensive but does not offer support for the startups or small business who still look at debt equity to fund their projects.

Simplifying the advantages of STO over IPO

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Security Token Offering vs Initial Coin Offering

ICOs or Initial Coin offering the crowdfunding way to raise capitals which gained a lot of traction in last 2 years. The participants, developers, early backers and investors receive digital tokens for as per the capital they contribute to the project.

The mechanism is very simple to implement and as it is still unregulated it allows small business and startups an opportunity to raise capital. The token can be exchanged for other cryptocurrencies or the participants can choose to hold them till the prices rise and later liquidate them against fiat.


Before we differentiate between ICO and STO let us have a look at how they are different from the traditional IPOs.

ico_vs_ipo

ICO ecosystem is devoid of any regulatory body and because of these scammers have made their way into the system. Regulatory bodies have been trying to bring around regulations like the set of guidelines issued by The Swiss Financial Market Supervisory Authority (FINMA) in early 2018. The guidelines were set to provide transparency to the ICO participants.

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How are STOs regulated?

Just like IPOs, STOs are also regulated as per the individual regulatory bodies of the jurisdiction. The United States Security and Exchange Commission categorizes an ICO as an STO when it passes the Howey’s test according to which a contract can be called an investment contract only when

  1. It involves an investment of money
  2. The money must be invested in a common enterprise
  3. The investment must be done with a reasonable expectation of profits
  4. The profits must be derived on the basis of entrepreneurial or managerial efforts


What is the stand of nations towards STOs?

Countries like the US and Thailand are working aggressively towards building guidelines around STOs.


To wrap

MARKNetwork, a unified blockchain solution provider is offering its investors STOs is actually an asset based token as opposed to ICOs which are utility tokens primarily.

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