Security token offerings

Abstract

This paper posits that distinguishing security token offerings (STOs) from initial coin offerings (ICOs) is important for the study of entrepreneurial finance. We first provide a working definition of a security token and present an overview of the STO market using a unique STO sample. The STO activity developed after the end of the ICO market bubble. The STO market is, however, still a nascent market. STOs are geographically dispersed but concentrated in jurisdictions with accommodating securities laws. Next, we explore STO success factors. We show that various issuer and offering characteristics traditionally used in the ICO literature also matter for STO success. We also find that success is associated with good governance practices, consistent with the corporate finance literature. We conclude by discussing the implications of native digital securities, the next generation of security tokens, for entrepreneurial finance.

How the quality of initial coin offering white papers influences fundraising: Using security token offerings white papers as a benchmark

“…Our main test used the average vector of all 72 STO white papers as the benchmark, given the premise that STOs are more regulated and possess higher disclosure quality. However, STO projects may be backed up by different types of underlying assets or equities and may provide different rights to investors, such as voting, dividend distribution, or compulsory redemption rights (Lambert et al, 2022). The disclosure of these different underlying assets and investor rights is important for an STO project.…”

“…Because security tokens have similar characteristics to traditional securities, the process of security token issuances, STOs, has been gradually brought within the ambit of securities regulations in different countries (Deloitte, 2020; Lambert et al, 2022). The issuance of security tokens through STOs is also recorded cryptographically and secured on distributed ledgers.…”

“…Thus, except for being established on blockchain, STOs bear a resemblance to general securities, such as stocks and bonds. According to a summary by Lambert et al (2022), the United States, United Kingdom, Germany, Singapore, Switzerland, and several other countries use existing securities or banking laws to regulate STOs. Only a few countries, such as Liechtenstein, have enacted new laws to govern STOs, whereas other countries do not regulate STOs at all.…”

The Model of OTC Securities Market Transformation in the Context of Asset Tokenization

“…The expected benefits associated with the mass tokenization of underlying assets in the financial market look promising: no need for intermediaries, high speed of settlements and clearing, increased liquidity, and lower access barriers for private investors. One of the main advantages of using the blockchain technology in the financial market lies in the digital representation of any type of underlying financial asset as a set of low-cost tokens, or digital records in the distributed ledger, i.e., precious metals, goods, shares, debt and contractual obligations, ownership and profit rights, real estate, works of art, and intellectual property [16].…”

“…Roger Heines et al reveal the potential offered by the transformation of financial markets in the context of underlying asset tokenization [15], while Thomas Lambert, Daniel Liebau, and Peter Roosenboom consider the issuance of security token offerings (STO) by small-and medium-sized businesses, as well as studying the factors that determine the success of such issuances [16]. The use of digital collective investment platforms and the execution of transactions in tokenized underlying financial assets is becoming an increasingly common practice.…”