• Ravi Agarwal

STO vs IPO

During our sales meetings, we sometimes spend the first ten minutes explaining to our clients the differences between the ICOs and STOs. While it’s easy to differentiate ICOs from STOs, the main question that constantly comes up instead is how the STO differs from the IPO?


If security token offerings are regulated public offerings, then what’s the difference and is there any good reasons for doing an STO instead of an IPO? IPO as a financing model has been around for a long time — the first IPO was conducted 400 years ago, in 1602! Today, many industry insiders believe that STOs will disrupt the IPO markets. As always with such statements, it’s wise to research and make your own conclusion.


Though we believe this will happen, we do not think it will happen as quickly as some people expect. As STOs and security tokens are regulated, providing any necessary infrastructure and services which are required for the market to function properly, are generally licensed activities. Licensing and compliance take time and capital. Hence, the barrier of entry is bigger, which makes everything slower, yet provides the much-needed certainty and quality, which has been clearly lacking in the ICO markets.


What advantages IPOs have?


STO vs IPO


As IPOs have been around for a long time, it means it’s the go-to option for established companies to raise capital. By established companies, we refer to companies that have a working product and viable economic results or at least supporting growth metrics (by growth we refer to IPOs that are generally done by unicorn startups which require capital to fuel their immense growth). Unicorn startups do not need new financing model, as they have plenty of interest from the VCs and the public. Yet, these are the companies and use cases that STO market needs in order to attract investors and capital.


The incumbents of the financial markets, the institutional capital, won’t invest into STOs if the quality of the companies isn’t there. So, IPO has a certainty as a fundraising method (not saying that IPOs don’t fail) which is proven itself through times. Certainty is a big factor, especially if big money is on the line. Imagine a CFO pushing for an STO and failing. It’s likely that this person will lose the job. Now, imagine a CFO going for the traditional IPO route and failing. Most likely, the person won’t get fired (at least not for this decision), as he or she just did what everyone expected. People are risk-averse, hence such psychological factors have to be considered when it comes to faster adoption of security token offerings. Perhaps soon, as STOs push themselves to the podium, and we have more successful use cases, then this won’t be a problem anymore.


Currently, traditional stock markets have lots of liquidity. Security token exchanges are just launching, and it’s not clear yet whether these exchanges will build great products and attract enough liquidity to provide a viable secondary market for the tokens. And it’s not clear when it will happen. Our assumption is that there will be plenty of options, just like with traditional stock exchanges. Already today, traditional stock exchanges are building their capabilities to facilitate the security token trading. For example, several crypto exchanges (Binance, OKEX, etc) are working with the Malta Stock Exchange to jointly launch trading platforms for security tokens. You can find similar initiatives elsewhere in Europe, Asia and in the US. Australian Securities Exchange, London Stock Exchange, Templum, Open Finance and tZero are some of the notable samples. The biggest crypto exchanges reached heights no one ever thought they would. Same will happen to the security token exchanges. The only question is when.


Lower barrier of entry.


It may sound a bit controversial, as STOs are regulated offerings, just like IPOs. Meaning, the issuer has to comply with the legal framework of conducting public offerings, which in turn means including lawyers and advisors — just like with IPOs. This costs money. Yet, the fees are far less than paying the investment banks and brokers. Post-offering administration is way cheaper with STOs compared to IPOs. Plus, STOs should potentially provide a more direct and transparent access to the investor base and lower brokerage fees compared to traditional investment banks.


While unicorn startups won’t need a new model for financing, it doesn’t apply to most companies. And there are plenty of quality companies that wouldn’t do an ICO due to uncertainty, and neither would they do an IPO due to the complexity and the cost. STO has the potential to unlock liquidity for these companies, and bring a plethora of new investment opportunities for the seekers of a steady return.


Not tied to any one country.


This is a big one. For example, if we think about doing an IPO in the European Union and how fractioned Europe is, then it’s not common that a Swede would invest into an IPO conducted in Spain. Very often it’s not even possible if you don’t have an investment account with the broker bank of the country where the IPO is done. Hence, the IPOs are usually carried out only in the jurisdictions where the company operates in, or perhaps some neighboring countries as well if the company doing an IPO has some presence there and the broker bank provides this possibility. With STOs, there’s no such problem.


You only need to have an account on the STO platform to participate. It doesn’t mean it’s automatically a global public offering. The issuer can set restrictions to the offering, i.e the offering is limited to the jurisdictions where the STO is registered and compliant (for example, European Union). STOs are not local, and this is a huge benefit in increasing the investor pool. Due to the nature of the STOs, the offering isn’t perceived to be tied to any one country. It’s usually seen as Company X is launching an offering on the Platform Y. With IPOs, it’s Company X is doing an IPO in Poland (or any other country).

The issued token is also not tied to any one exchange and does not depend on the quarterly expectations of analysts. It’s a well-understood fact that pushing for quarterly results harms companies and the quality of the decision-making.


Compliance is programmable.


Compliance can be enforced by code. Transfer restrictions, geographical boundaries, lock-up period etc — all legal requirements can be programmed into the token. That’s important, as it will make the offering and the post-offering administration easier and cheaper.


Novelty.


Cryptocurrencies and ICOs swept through the financial markets like no-one ever expected, with an exception of the hardcore fans and crypto-believers. Get rich quick promise and ease of getting involved created a huge community of people that were introduced to investing, who got their taste of making a profit, and unfortunately, also losing money. This new investor community is looking for better and safer investments. The investor profile may be a bit different (STO investor and ICO investor), but the interest in STOs is already huge, and the door is wide open for these new investors. Especially the younger generations, they are gladly adopting token investments instead of opening investment accounts in traditional banks. These are people that have never invested in traditional stock markets, and probably never will. As for the more experienced investors that have been investing in traditional stock markets until now, they will continue to do so, together with investing in the security tokens.


Fractional ownership


Tokens allow fractional ownership, which means that the security/asset can be fractionalized into smaller units. This makes investing more affordable for investors with a limited budget.

32 views

© 2019 EGW Capital Inc. USA

 

Other Links:
 

BitcoinTalk Page

Telegram Group


Medium 

Github
 

EGWCAP Holding Structure

 

Explorer: Etherscan | Ethplorer

Privacy Policy | Use Case

 

These websites are using cookies. By further using the websites you agree with using cookies. Read More

 

Disclaimer: This site is not intended to be an offer to sell, or a solicitation of any offer to buy, any security or other financial instrument or to invest in the token issued by EGW Capital, Inc. The offering of the EGW Capital (EGWCAP) Token has not been registered, qualified, or approved under any securities, futures, financial instruments, capital markets, or exchange control legislation, regulation, or ordinance of any jurisdiction. In all jurisdictions, any offer to sell or solicitation to buy a EGW Capital (EGWCAP) Token, when made, will be directed solely to qualified institutional investors, qualified professional investors, and those other sophisticated persons to whom offers and solicitation may be made without any licensing, registration, qualification, or approval under applicable law. Before you decide to invest in a EGW Capital (EGWCAP) Token, you should carefully read the EGW Capital (EGWCAP) offering documents and consult with your own advisors. An investment in a EGW Capital (EGWCAP) Token is speculative and involves risks, which you should understand prior to making an investment. The private placements of EGW Capital (EGWCAP) Tokens have not been registered under the Securities Act of 1933, as amended (the “Securities Act”) or any state securities laws, and the EGW Capital (EGWCAP) Tokens are being offered pursuant to an exemption from registration provided by Rule 506(c) of Regulation D under the Securities Act and in reliance on similar exemptions under applicable state laws. An investment in EGW Capital (EGWCAP) is suitable only for sophisticated, well-informed investors, and investors will be required to represent and provide evidence that they are accredited investors as such term is defined in Rule 501(a) of Regulation under the Securities Act. This site contains forward-looking statements within the meaning of Section 27a of the Securities Act of 1933, as amended and section 21e of the Securities and Exchange Act of 1934, as amended. Those statements include the intent, belief or current expectations of the company and its management team. Forward-looking statements are projections of events, revenues, income, future economics, research, development, reformulation, product performance or management's plans and objectives for future operations. Some or all of the events or results anticipated by these forward-looking statements may not occur. Prospective investors are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties, and that actual results may differ materially from those projected in the forward-looking statements as a result of various factors. Accomplishing the strategy described herein is significantly dependent upon numerous factors, many that are not in management's control.

DigiAssets Contract: 
https://digiexplorer.info/asset/La55ZSto4BRcMwbVpFxSvMh82ycimQMKEZsAiv/affe745bb1cbf15893d05c2719e44da62475d1b7299bfe34859459443e9172cc/0  

  • LinkedIn - Grey Circle
  • Facebook - Grey Circle
  • Twitter - Grey Circle