What is a Security Token Offering (STO)?

Posted by Polymath

Note: This blog post was originally published on Medium on March 12, 2018.

We all know that the ICO space is huge. In fact, 2017 saw startups raise a massive $5.6 billion. That’s no small feat. However, considering that trillions of dollars worth of securities are stampeding towards the blockchain, $5.6 billion is a mere drop in the ocean.

In a traditional ICO, tokens or coins are offered by companies for purchase as a form of crowdfunding. Purchasers can exchange their cryptocurrency (typically ETH or BTC) for a specified quantity of the tokens on offer. It’s a little bit like buying shares. But, you are not buying shares…

When you buy a share in a company, they usually carry a specific set of rights and obligations. Voting rights would be a good example here as well as shareholder dividend payouts. When you buy tokens in an ICO, you don’t get any of those rights or obligations. Your new “utility tokens” give you access to a specific network, platform, or service.

To participate in a Security Token Offering is very similar to participating in an ICO. You can purchase tokens during the offering that you can then trade, sell, or hold. However, since security tokens are actual financial securities, your tokens are backed by something tangible like the assets, profits, or revenue of the company. 

When companies release their Security Token Offerings on the Polymath platform, they will have been guided through the complex legal and technological processes before issuance. The tokens released in this way are intended to be compliant with KYC/AML requirements, and securities laws in whatever jurisdictions they touch.

Security tokens created using Polymath’s ST-20 standard are able to prevent trade between excluded persons through the use of robust smart contracts and our address whitelisting technology.

Since the Securities and Exchange Commission Chairman, Jay Clayton, stated that he believes all ICOS constitute securities, the time is now ripe for security tokens and for a platform to facilitate their issuance in a scalable, automated way.

Polymath is a blockchain technology provider. Polymath is not a broker-dealer, funding portal, trading platform or otherwise engaged in the business of trading in securities or providing advisory services regarding the issuance, buying or selling of securities. Polymath is not making any recommendation or giving any advice with respect to any company or proposal discussed in this communication.


Related Posts


Security Token Custody: The Challenges and Opportunities

Security tokens come with a unique set of requirements. While they’re intended to bring efficiency and automation to capital markets, digital asset custodians often face scalability and efficiency issues when handling them on public blockchains.

This guide dives deep into the challenges surrounding security token custody and how a purpose-built blockchain can overcome them.