Today in this digitized world, many companies hit with many different methods in raising capital for bank loans, trading, shares marketing on stock market. In that, three popular fund raising methods utilized by many start-ups include ICO, STO and ETO. In order to raise the funds for your projects, these three methods involve the same process of selling the digital tokens or providing a token based securities in exchange to the money.
To state more about their difference, there is not that much distinctness lies among these three fund raising methods whereas they differ in their individual core concept.
To define it in brief, ICO means the selling of crypto tokens in exchange of cryptocurrencies. STO refers the involvement of security tokens offering in exchange for funding. ETO is one type of security token offering that investors acquire equity tokens or company shares in exchange to their investments
Here is a detail view to get a more interesting and common differences that you need to know before selecting one of these three fund raising methods.
Initial Coin Offering (ICO)
An initial coin offering is one way of fund raising that is equivalent to an initial public offering in the cryptocurrency market. The slight change in ICO than IPO is it involves the sale of cryptographic tokens in exchange to other crypto currencies like bitcoin, ethereum or other cryptocurrencies.
In ICO, it is quite different from IPOs in one dominant way. Initial coin offering will not provide any ownership rights to the investors in the company. In this, only the digital token is issued to the investors which contains the value of successful growth or failure of the project in blockchain industry.
It is important for the investors to know about the significance of acquiring control over the buying units if an investors buy a digital token through ICO.
Due to its nature, ICO model opens up investors towards immoral persons and creates a chance to defraud investors. As a result, ICO treat to be a high-risk investments and need to analyze thoroughly before getting into an initial coin offering.
Security Token Offering (STO)
To consider the legal guidelines newly launched by financial regulators, there ICO emerges with an advanced models all over the world. In that way, the cryptocurrency regulations of new ICO gets in to the crypto market.
In that, security token offering (STO) is arising everywhere in an effective way. The security token offering function similar as an ICO with the basic common difference that investors undergo to purchase a regulated financial asset with high security in a tokenized form.
To state with few examples of STO, it include many companies offering tokens reparable for precious metals or transforming your asset in to digital tokens in which it may be supported by another asset such as real estate or representing shares in a company or tokenized debt which function similar to a corporate bond.
Due to its legalization with security laws and regulations, many companies hold an STO which is more inhibited than an ICO. So that they are progressively drawn to this fund raising model because of its legality in raising funds.
Equity Token Offering (ETO)
At last, one of the types of security token offering is the equity token offering (ETO). ETO facilitate companies to raise funds by selling shares as a digital tokens to investors.
In return, investors can purchase tokenized equity holdings that helps to claim the company’s assets and also arise with shareholder voting rights.
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