There are a ton of “ism” words being thrown around these days — socialism, capitalism, nationalism, globalism, and regulationism… ok, I made that last one up but you get the idea. Many of those ism words, if not all of them, can spark vast debates (and possibly some subsequent fistfights), and while our world of crypto may have been sparked in stark protest of some of those very concepts, we are indeed guilty of one ism that can be quite confusing at times.
I’m talking about initialism. In crypto, 3-letter abbreviations are as common as “alternative facts” from the White House, they’re everywhere. From crypto ATMs (thankfully that translates to the traditional meaning) to ZEC and everything in-between, we’ve practically got initialism cornered.
With ICOs drawing less and less investors, many are turning to two 3-letter words that can be a little confusing to newcomers — IEOs and STOs. So today I thought I’d take a quick look at what they are, what they mean for you, and the key differences between them.
Initial Exchange Offering (IEO)
Simply put, IEOs are token sales. However, instead of the wild west “anything goes” atmosphere of traditional ICOs (Initial Coin Offerings), IEOs are backed by cryptocurrency exchanges and the token sale is only available to registered exchange customers. In theory, since the exchange is responsible for directly managing the fundraising efforts and it’s ultimately their reputation that’s on the line, they’re significantly incentivized to ensure that they complete due diligence on the project and team behind it. Ultimately of course, the goal is to make it safer for investors to get behind new projects with less chance of the project being a scam.
Security Token Offering (STO)
Initially created to protect investors and reduce the high number of ICO scams, there’s no plain and simple explanation for this one. STOs are financial securities that are issued in the form of a digital asset. This asset will generally “represent ownership rights in an underlying company and/or its assets.” This means that security tokens give equity or debt in the project or the company itself.
First, STO tokens can be traded directly in a peer-to-peer format as opposed to having to utilize an exchange to mitigate the trade. You can think of them as digital certificates that are not too unlike the real-world stocks and bonds that you can utilize in exchange for an investment.
However, aside from this and the initial distinctions in the descriptions above, there’s one major difference that prospective investors should be aware of. Since STOs are always backed by tangible assets, (remember, these tokens represent ownership in the company or the project), they are subject to securities regulations.
Because STOs are backed by real assets and comply with government rules, they’re becoming a very popular option and one of the most trusted investment tools in the crypto world.
I think that about covers it folks, the quick and simple version anyway.
Are ICOs on their last breaths?
Only time will tell.